When it comes to assessing the creditworthiness of a business loan seeker (also known as a ‘debtor’), a common practice followed in India by most Financial Institutions – Banks as well as NBFCs, is to rely on the debt (loan) information outlined in the various Credit Reports available in the market today.
While such Credit Reports are indeed helpful since they highlight the details of all financial debts of a debtor, they miss out on other crucial aspects of any debt – the exposure to operational and other types of credit.
What is Operational Credit?
To simplify, an operational credit is the outstanding amount due to Operational Creditors i.e. Vendors, who provide goods and/or services to a debtor. While a Financial Creditor is any person/entity that offers financial credit (loan) to a debtor, an Operational Creditor is any person/entity that offers operational credit (in the form of goods and/or services) to a debtor.
Since the Insolvency and Bankruptcy Code (IBC), 2016 considers Operational Creditors and Financial Creditors equally important; a debtor is legally bound to clear all his operational debts along with his financial debts.
As popular Credit Reports do not include any information on operational and other types of debts, Financial Institutions find it very difficult to assess the true creditworthiness of a debtor by evaluating his holistic exposure to all forms of debts – financial, operational, commercial paper, inter-corporate advances, bonds or debentures raised from the capital market, etc.
Acknowledging this key pain point faced by Financial Institutions, National E-Governance Services Ltd. (NeSL) has introduced ‘Credit Facility Report (CFR)’ that cohesively presents the complete debt information of a debtor.
Notables Features of NeSL’s CFR
1. Comprehensive Debt Information
The CFR offers a 360-degree view of all types of debts of a debtor in the capacity as a debtor (borrower), co-obligant or guarantor.
Further, it highlights debt defaults, if any, and provides the authentication status of each debt that helps in gauging the overall authentication behaviour and genuineness of the debtor.
Please click here to download a sample Credit Facility Report (CFR).
2. Non-repudiable Information
As seen in our previous post, IBC and RBI have mandated all Financial Institutions to upload their debt (loan) records on NeSL’s Information Utility (IU) portal. Since these debt records are first approved by the concerned debtor and then authenticated by NeSL, the legitimacy of the debt becomes unquestionable.
The authenticity of debt is further cemented by the fact that Financial Institutions can access/download the CFR only after receiving a formal consent from the debtor. This two-pronged approach to debt authentication makes NeSL’s CFR a non-repudiable document.
3. Better Legal Credence
Since the CFR is digitally signed by NeSL, its contents cannot be altered or modified by any party. As NeSL is owned by major Indian banks and incorporated as a Union Government Company, a digitally signed CFR by NeSL offers the highest legal credence as governed by the law of IBC, 2016.
4. Easy Access
Financial Institutions can easily access and download a debtor’s CFR either through NeSL’s IU portal or through API integration on their own systems.
5. Free of Cost
Unlike other expensive Credit Reports available in the market, NeSL’s CFR can be download free of cost from the IU portal.
To Sum It Up
As more and more businesses line-up for loans in the post-COVID world, easy access to their entire debt portfolio becomes critical for Financial Institutions.
NeSL’s CFR not only offers this complete debt information free of cost but also aids in building a cohesive credit information ecosystem in the country for informed decision making.