What is the public tech platform for frictionless credit?
It is a digital platform created by RBI’s subsidiary — Reserve Bank Innovation Hub — which will enable seamless flow of necessary information to lenders. This in turn will help in disbursing ‘frictionless’ credit. Note, the platform itself is not a lending or credit issuing facility. It will only collate or compile data from various agencies and present it to lenders operating through the platform, in a form and manner required for them to take credit calls.
What is the timeline for implementation?
On April 17, the RBI rolled out a pilot project for pure retail products such as Kisan Credit Card loans up to ₹1.6 lakh per borrower, dairy loans, un-collateralised MSME loans, personal loans, and home loans.
How will the platform work?
It is intended to be an open architecture, open Application Programming Interfaces (APIs) and standards platform where all financial sector players can connect seamlessly in a ‘plug and play’ model. To put in in layman’s terms it’s akin to a Google search for retail lending. It would collate data required to sanction and disburse loans which could include Aadhaar e-KYC, Aadhaar e-signing, account aggregation by Account Aggregators (AAs) and PAN validation, essential for KYC.
Likewise, in the pilot phase, the platform has land records on-boarded from five State governments (Madhya Pradesh, Tamil Nadu, Karnataka, Uttar Pradesh and Maharashtra), satellite data, transliteration (or converting documents in local language text to English) and house/property search data which are important for processing home loans. In the case of dairy loans, milk-pouring data from select dairy co-operatives will be available. The scope and coverage of the data requirements will be expanded as more products, information providers and lenders sign up.
What is RBI’s objective behind this move?
Over a decade back, bill discounting was a two-day exercise for traders and corporates. The TReDs, or trade receivables discounting system, established by RBI in 2014 allowed MSMEs to avail of discounting services round the clock which eased their access to working capital. The public tech platform aims to replicate this for retail loans.
Typically, for a new to bank customer availing any retail loan could take 2-3 days; with home loans it could be 2-3 weeks. For new to credit customers, the wait can be longer. The platform can help in significantly reducing the turnaround time, which would eventually lead to better operational efficiencies and free up the bandwidth (of employees and the back-end systems) to process and sanction more loans.
Will this help borrowers access credit easily?
Certainly yes. But what is not known yet is whether banks will want the documents required for processing and sanctioning loans from the borrower as well for KYC and documentation purposes. The current mechanism requires them to seek and store this information for documentation purposes. If that be the case, it could be counterproductive to the platform’s objective.
What will be some of the challenges in implementation?
Not everyone may have Aadhaar or PAN. Similarly, property related documents may be kuccha, especially in tier-3 and below cities and slums in the case of cities. If the intention of the RBI is to ensure that even such category of borrowers can get access to formal credit, compiling relevant data could be a challenge. Can the platform facilitate ease of credit underwriting without diluting the standards will hold key for its success.