Bridging Information Asymmetry In Credit Ecosystem: A Case For Broadening The Regulatory Mandate Of Information Utilities
Yadwinder Singh, Manager, Insolvency and Bankruptcy Board of India
Eshan Jaipuriar, Officer, National E-Governance Services Limited
Boon Verma, Company Secretary Trainee, DFCCIL (CPSE)
ABSTRACT
The credit ecosystem, over the years, has witnessed a greater need for information symmetry amongst the market participants to make informed lending decisions and understand the borrowers' credit behaviour. Any asymmetry in the information available with the lenders qua the borrower(s) can lead to hazards of adverse selection and inefficient credit allocation. The availability of credible information is crucial at the time of credit creation and at the time of recovery of bad credit. Cognizant of this understanding, the Information Utility was introduced in the insolvency ecosystem, inter alia, to eliminate inefficiencies resulting from information asymmetry, and to improve the quality of information available at the disposal of stakeholders. The article employs qualitative research methodologies comprising of analysis of total records of financial information received, and its authentication trends in the context of the creditor segment reporting the highest default. Additionally, the article adopts legal research into the provisions encompassing the collection, authentication, and storage of financial information by the Information Utility. Information Utility accepts the information from creditors and gets the same authenticated by all concerned parties to ensure that the information stored reflects adequately upon the ‘creditors’ version of the truth’ and the ‘borrowers’ version of the truth’. The article studies the authentication trends of the borrowers and suggests measures to improve the same through legislative and regulatory interventions along with developing complementary commercial practices. Further, it examines the significance of an ‘authenticated’ Record of Default and suggests a ‘straight-through admission’ of application by the Adjudicating Authority. Lastly, the article assesses the legality of ‘authentication of information’ by debtor amounting to the acknowledgment of debt for the purposes of the Limitation Act, 1963, and concludes that Record of Default can singly aid in ascertaining the existence of debt, default, and limitation.
Keywords: Information Asymmetry, Information Utility, Credit Ecosystem, Insolvency Law, Debt and Default
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