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GSTN-like body on cards: Govt plans co to screen and rate borrowers

The govt is considering on creating an SPV similar to GSTN to monitor & screen commercial borrowers.

, ET Bureau|
Updated: Jun 18, 2019, 08.45 AM IST
The database would be used to develop a dynamic rating model to monitor borrowers’ financial health, ET has reliably learnt from people familiar with these discussions.
NEW DELHI: The government is considering a proposal on creating a special purpose vehicle (SPV) similar to the Goods and Services Tax Network (GSTN) to monitor and screen commercial borrowers.

The SPV would be vested with a giant database collated from information available with all public sector banks. The database would be used to develop a dynamic rating model to monitor borrowers’ financial health, ET has reliably learnt from people familiar with these discussions. These officials spoke off record.

The proposal is said to be part of a set of initiatives the government is planning in its first hundred days in office. “It is too early to comment on this,’’ KV Subramanian, chief economic advisor to the finance ministry, said when ET contacted him.


GSTN is a non-profit, non-government, private limited company in which the central government holds 24.5% equity. States and the empowered committee of state finance ministers together hold another 24.5% and the rest 51% is owned by non-government financial institutions. It is tasked with operating the complex state and central tax systems on a single platform using technology.

The proposed ratings model would be dynamic and capable of monitoring borrowers continuously, from the time of application until full repayment. It will use data analytics to track related party transactions and any attempts to siphon money out of companies, it is learnt. Public sector banks that have a common majority owner—the government—is expected to ease consolidation of data. Artificial intelligence and machine learning will be used for analytics.

Plan to Amend Banking Laws

The government is also understood to be considering amending banking laws to check loan evergreening (helping borrowers pay old dues by handing out new loans).

New norms would likely require banks to report any default beyond a week to the company affairs ministry if the company is unlisted and to Sebi, if it is listed. Such timely information sharing, it is believed, will prevent cascading damage when a company faces financial crunch and is on the verge of default.

Currently, while companies are required to immediately report default on bonds to Sebi, they are not required to do so for bank loans, which account for bulk of the credit in the economy.

New comprehensive reporting norms may also mandate ratings agencies to look at short-term instruments such as commercial paper more closely to prevent mismatch between short-term and long-term ratings. The picture of the financial health of a borrower becomes fuzzy when its commercial paper often gets top rating even when its long-term rating is much lower.

India held the dubious distinction of having the worst non-performing loan ratio among the world’s major economies, ET had reported in February. Reserve Bank of India had said in December 2018 that bad loans as a proportion of total loans shrunk for the first time since 2015 even though it was still too “high for comfort”. At $190 billion, Indian lenders have a massive heap of stressed and bad debts.

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