Context: The RBI has recently commenced a pilot programme endeavouring to evaluate the feasibility and functionality of the ‘Public Tech Platform for Frictionless Credit’.
The suggested platform aims to enable delivery of frictionless credit by facilitating seamless flow of required digital information to lenders.
What is a Credit Appraisal Process?
- A loan is processed only after a necessary level of scrutiny is done on the ability of the borrower to repay that loan. This process is known as credit appraisal.
- Hence, it evaluates and accordingly predicts the prospective borrowers’ ability for repayment of credit/loan and adhering to the credit agreement.
- This pre-disbursal process is particularly important for banks since it helps them determine the interest they are going to charge and assess the impact of the loan on their balance sheet.
About the Platform
- The public platform will be developed by its wholly owned subsidiary, the Reserve Bank Innovation Hub (RBIH).
- The proposed end-to-end platform will have an open architecture, open Application Programming Interfaces (API) and standards, to which all financial sector players would be able to connect seamlessly in a ‘plug and play’ model. (Similar to UPI)
- The platform would extend its focus also towards dairy loans, MSME loans (without collateral), personal loans and home loans.
- It is expected to link with services like Aadhar e-KYC, Aadhar e-signing, land records from onboarded State governments, satellite data, PAN validation, transliteration, account aggregation by account aggregators (AAs), milk pouring data from select dairy co-operatives, and house/property search data.
Benefits of Such Platform
- Currently, the data required for the credit appraisal process rests with different entities like central and state governments, account aggregators, banks, credit information companies, and digital identity authorities. This separate system creates hindrances in frictionless and timely delivery of rule-based lending. The new platform would bring all of the data required for the credit appraisal process together in one single place.
- Improved access to information will enable fact-based and quick credit assessments. It ensures that credit is extended to a larger set of borrowers with good credit history.
- The borrowers too would benefit by the resulting lower cost of accessing capital. Availing formal credit may require multiple visits to the bank alongside cumbersome documentation. This translates to higher operational costs for lenders which may also get distributed to borrowers.
- All in all, the lending platform would bring about reduction of costs, quicker disbursement and scalability.