Public Tech Platform for Frictionless Credit

The Reserve Bank of India (RBI) has initiated a pilot programme aimed at evaluating the feasibility of a ‘Public Tech Platform for Frictionless Credit’, seeking to facilitate seamless and efficient credit delivery by lenders for Credit Appraisal, and therefore boosting Financial Inclusion in India.

The initiative comes as part of RBI’s developmental and regulatory policies and was introduced following the Monetary Policy Committee (MPC) meeting in August 2023.

What is Public Tech Platform

It is a digital platform created by RBI’s subsidiary— Reserve Bank Innovation Hub which will enable seamless flow of necessary information to lenders.
Aim- To help in disbursing ‘frictionless’ credit.
Pillars
- The problem of adverse selection (that results from the asymmetry of information from either the borrower or lender),
- Measurement of exposure risk
- Assessment of default risk (the probability that the borrower may default in repayment).
Features– It will have open architecture, open Application Programming Interfaces (APIs), and standards, to which all financial sector players can connect in a ‘plug and play’ model.
It would collect data required to sanction and disburse loans which could include Aadhaar e-KYC, Aadhaar e-signing, PAN validation, etc.
With the participation of banks, the platform would extend its focus also towards dairy loans, MSME loans (without collateral), personal loans and home loans.

What are the Benefits and Outcomes?

Enhanced Credit Portfolio Management:
- The platform’s data consolidation will enable improved credit risk assessment and efficient credit portfolio management.
Improved Access to Credit:
- Access to accurate information supports informed and swift credit assessments. This expansion of credit availability benefits borrowers by lowering the cost of capital access.
Reduced Operational Costs:
- The platform addresses operational challenges such as multiple visits and documentation requirements, leading to cost reduction for both lenders and borrowers.
  - RBI’s survey indicated that processing of farm loans took two to four weeks and cost about 6% of the loan’s total value.
Efficiency and Scalability:
- The platform’s streamlined processes lead to quicker disbursement and scalability, resulting in a more efficient credit ecosystem.

Purpose of the Platform

Improved Credit Risk Management

The platform serves as a foundation for more advanced credit risk assessment and comprehensive credit portfolio management. By leveraging better quality information, lenders can make data-driven credit evaluations more efficient. This leads to more informed decisions regarding the risk associated with lending to specific borrowers.

Wider Access to Credit

Through the platform’s capabilities, financial institutions can extend their offerings to a wider range of borrowers who possess favourable credit histories. This expanded access can potentially include individuals and businesses that were previously excluded from formal credit channels. As a result, more people and enterprises gain the ability to secure the necessary funding.

Benefits for Borrowers

Borrowers stand to gain from the platform’s capabilities as well. With reduced costs tied to obtaining capital, individuals and businesses can allocate a larger portion of funds toward productive investment activities. Lower costs for borrowing mean that more capital can be put to work, stimulating economic growth.

Streamlined Process

The platform’s integration streamlines the credit application process. The need for multiple visits to banks and extensive documentation is minimized. This not only leads to more convenient experiences for borrowers but also contributes to operational efficiency for both lenders and borrowers. The simplified process is expected to make credit transactions smoother and faster.

Cost Reduction and Scalability

One of the platform’s overarching goals is to drive down operational costs across the lending ecosystem. This cost reduction can be realized due to streamlined processes, reduced paperwork, and more efficient credit assessments. Quicker loan disbursement is also anticipated, enhancing the overall lending experience. Additionally, as the platform’s implementation progresses, it is expected to support enhanced scalability within the lending industry.

Overall, the “Public Tech Platform for Frictionless Credit” is designed to usher in a more inclusive, efficient, and technologically-driven era for credit lending in India. By combining enhanced risk assessment with streamlined processes, the platform aims to benefit both borrowers and lenders, ultimately fostering economic growth and financial stability.

What will be the challenges in implementation?

Not everyone may have Aadhaar or PAN.
Property related documents may not be available, especially in tier-3 and below cities and slums.
Compiling relevant data could also pose a challenge.