An acceptance or agreement on debt balances throughout the journey of the debt is good for the borrower and lender, guarantors, security providers, auditors of the debtor, prospective lenders, credit rating agencies, credit scorers, policymakers with data of macro-level indebtedness, and the quasi-formal judicial system that will resolve the disputes without going to the formal judicial system.
When all these stakeholders can view the same debt balance at a single source, such a repository serves as a single source of truth. When this is possible to be done at a click of a mouse, it may arguably be the moment of reckoning. This has now arrived with the Government of India establishing an infrastructure that stores data points of each financial contract, including the amount of debt, outstanding balance, security interest of lenders, default and financial statements or repayment history.
All financial contracts of debt ranging from banks to moneylenders as loans, debentures, commercial paper, etc. are mandatorily filed with adequate details, including repayments. Borrowings from banks or NBFCs, inter-corporate advances, bonds or debentures raised from the capital market are in a digital repository system. Each business transaction creates a creditor who is eligible to file details of credit provided to its buyers, including the payment due dates. In either case, when the due date for the payment is crossed, a default can be filed electronically which serves as an early warning to all creditors linked to the person that has failed to pay on the due date. There is no physical movement, only digital clicking. The era of paper and it’s scanning of invoices or demand notices is truly over.
The creation of any debt involves documentation. When a party to the debt completes this from the comfort of its respective office or home, we can ring in the arrival of a new digital platform. A contract document is pushed digitally through an API for the borrower to peruse and agree, which is followed by two digital interfaces – one with the revenue department of a state for receiving a unique stamp certificate number and two, with the E-sign authority of the country. At worst, the time taken for a single digital signature for all documents is 6 minutes. The era of collecting a stamp paper with fears of a corona attack, braving the mid-day sun to reach a bank where 50 ink signatures (in blue) are to be affixed, all the while hoping that your manager does not deduct a day’s leave, is truly over.
Credit monitoring across the widest set of credit data will be a computer-driven activity downloaded on Excel or a feed into the algorithm of a lender that probes for delinquent tendencies or predicts default. Financial information is accessible to lenders underpinned by the principles of data privacy and consent. To obtain consent from a borrower at the outset is an industry practice and to intimate the debtor that its information was accessed on the platform, conforms to privacy standards. The time-tested process of taking an acknowledgment of the debt from the borrower to stave off limitation is now just an online evidence when balances are authenticated on a digital platform that is operated by a neutral third party. The auditor of a company has to merely check the debt balances posted by its creditors online and reconcile them with what is stated in the books of the debtor company. The era of information asymmetry between the borrower and the lender is truly behind us.
The heart of a system of storing evidence of an agreement to debt balances is authentication, as harmoniously read from provisions of the Information Technology Act and the Evidence Act. The principle of estoppel is implicit when either party places a digital signature on the debt balance that is captured and stored as evidence with an assurance that due procedure was followed and actions of each party recorded with full fidelity. An index of borrower behaviour is a useful construct that emerges in ensuing the corresponding to and fro recorded between the parties. How long a party takes to respond and agree to the debt balances, if at all, is recorded and transformed into a number since the world of Email/WhatsApp captures every action or the absence of it. This behavioural index can be accessed by any creditor for obtaining insights into the responses of a prospective borrower in relation to its obligations towards earlier debts, be it financial or operational. This evolutionary process may induce discipline in borrower since their digital footprint is now across the credit industry. Each party to the debt is expected to authenticate the financial information received and the era of hiding behind undelivered notices in an inefficient paper world is over.
History informs us that innovations in our financial architecture, like ‘demat’, took years to take root in our system, since opacity has its supporters. The transformation in the information infrastructure for debts may be quicker given the recent demand for remote operations. Multiplicity of repositories for credit, each backed by their respective laws, is a testimony to the attempts made by the GOI in allowing the sunlight to come into the world of debt. Interlinking of these repositories to make them uniform reflect that the single source of truth is still work-in-progress. When this truly happens, the procedural costs for participants will be a thing of the past.
Welcome to the world of Information Utility! An outcome of the Insolvency and Bankruptcy Code (IBC) 2016, and ushered in by the Ministry of Corporate Affairs (MCA) and the Insolvency and Bankruptcy Board of India (IBBI), and guided and supported by the Reserve Bank of India (RBI) and other regulators.
Managing Director & CEO, NeSL.