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RBI considers allowing up to 74 per cent FDI in credit information companies

The Reserve Bank of India (RBI) has said it may allow up to 74 per cent foreign direct investment in credit information companies, which will not only pave way for more foreign capital to such companies present in India but will also help foreign credit information companies set up shop in the country.

The Reserve Bank said in a notification it may consider allowing higher FDI limits to entities "which have an established track record of running a credit information bureau in a well-regulated environment".

News website Moneylife reported, quoting sources, that the move will benefit "Italian CRIF SpA to enter Indian market and also take over cash-strapped High Mark Credit Information Services Pvt Ltd (High Mark)". CRIF already owns about 9% stake in High Mark, which is one of the companies in Indian market to raise funds.

The other players in India are CIBIL, Experian and Equifax, in which Indian banks and financial institutions hold stakes.

According to the new RBI notification, the limit can be allowed to be increased up to 49 per cent in credit information companies if their ownership is not well-diversified, which means if one or more shareholders each hold more than 10 per cent voting rights in the company.

The limit can be raised to 74 per cent if the ownership is well-diversified, the RBI said. If the ownership is not well-diversified, at least half of directors of the investee credit information company (CIC) in India should be Indian nationals or non-resident Indians or persons of Indian origin, subject to the condition that one-third of the directors are Indian nationals resident in India, the notification said.

"The investor company should preferably be a listed company on a recognised stock exchange," RBI said. In case investor in a CIC is a wholly-owned subsidiary (directly or indirectly) of an investment holding company, these conditions will be applied to the operating group company that is engaged in credit information business and has undertaken to provide technical know-how to the CIC in India, the regulator said.

Credit information companies collect and maintain records of an individual’s payments pertaining to loans and credit cards. These records are submitted by member banks and credit institutions on a monthly basis. This information is then used to create Credit Information Reports (CIR) and credit scores which are provided to credit institutions in order to help evaluate and approve loan applications.

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