When lending to a borrower, one of the critical parameters that Financial Institutions consider is the borrower’s total exposure to debt.
Ensuring end-to-end visibility into a borrower’s total outstanding debt is especially important when lending to corporate debtors who can have multiple types of debts like business loans, commercial papers, corporate bonds, etc. Furthermore, corporate debtors also have operational debts in the form of outstanding vendor payments. Establishing a 3600 view into a corporate debtor’s debt portfolio is critical to assess his creditworthiness.
To create a robust repository of authenticated debt information, National E-Governance Services Ltd. (NeSL) was incorporated as India’s first Information Utility (IU) registered with the Insolvency and Bankruptcy Board of India (IBBI) that operates under the aegis of the Insolvency and Bankruptcy Code (IBC), 2016.
When Financial Creditors (Banks, NBFC, ARCs, Debenture Trustees, etc.) upload the debt information of their borrowers on NeSL’s IU portal, NeSL sends the information to the debtors for authentication. All details of the authentication are diligently stored in the IU and easily accessible by both Financial and Operational Creditors.
The debt information available in the IU is legally treated as authentic information that does not require any further authentication and serves as an evidence of debt in all arbitration forums.
To assist Financial Creditors assess the creditworthiness and financial robustness of a corporate debtor, NeSL offers two crucial reports that present a detailed overview of an organisation’s exposure to debt.
1. Debt Query Report (DQR) & Credit Facility Report (CFR)
The DQR is a nimble report that provides a Yes/No confirmation of the existence of debt for a PAN holder.
Without disclosing the creditors’ names, the DQR presents the aggregate debt information that registered users can quickly view on NeSL’s IU portal. Here is a quick snapshot of the DQR:
Upon confirmation of debt, a detailed Credit Facility Report (CFR) can then be downloaded with the debtor’s consent from the IU portal.
2. Authentication Track Report (ATR)
As mentioned earlier, when a creditor uploads the debt information on NeSL’s IU portal, NeSL sends the information to the corresponding debtors for authentication.
The debtors have the option of authenticating i.e. approving the debt information or disputing the same in case of any mismatches in the information provided by the creditor. The authentication status is duly categorised as Authenticated, Disputed and Deemed-To-Be-Authenticated (in cases of default filing by a creditor) in the IU.
Authentication Track Report (ATR) summarises the authentication status in the form of an ATR % (in percentage) that indicates the debtor’s responsiveness to the number of debt authentication requests sent on behalf of creditors by the NeSL IU platform. Here is a quick snapshot of the ATR:
The ATR Score serves as a confirmed indication of the co-operative behaviour of a debtor. This acts as a crucial insight for Financial Creditors during the credit appraisal / monitoring stage of the debtor.
To Sum It Up
As the COVID-19 lockdown restrictions get gradually eased, more and more organisations will kick-start their business operations with a new sense of purpose.
The demand for capital is expected to significantly rise with businesses lining-up for new business loans and other forms of credit. To prevent bad loans and NPAs, Financial Creditors need to arm themselves with cohesive credit-appraisal tools such as the ones provided by NeSL.