PUBLIC TECH PLATFORM FOR FRICTIONLESS CREDIT
1. Context
On August 17, the RBI commenced a pilot programme endeavouring to evaluate the feasibility and functionality of the ‘Public Tech Platform for Frictionless Credit’. The suggested platform would strive to “enable the delivery of frictionless credit by facilitating seamless flow of required digital information to lenders.”
2. Credit Appraisal and Digital Loan Delivery:
- Credit appraisal assesses borrower's ability to repay loans and adhere to agreements.
- Crucial for banks as it affects their interest income and balance sheets.
- Data needed for appraisal spread across different entities, causing delays and issues.
- Separate systems hinder smooth and timely rule-based lending.
3. Centralized Platform Solution:
- New platform integrates data from various sources into a single system.
- Aims to enable seamless and timely loan delivery.
- Addresses hindrances in the current lending process.
4. Pilot Project for Kisan Credit Card (KCC) Digitalization:
- Central banking regulator initiated pia lot in September 2022.
- Focus on digitalizing KCC loans below 1.6 lahks.
- Testing paperless and hassle-free end-to-end lending process.
- Ongoing in selected districts of Madhya Pradesh, Tamil Nadu, Karnataka, Uttar Pradesh, and Maharashtra.
- Offers doorstep loan disbursement in assisted or self-service mode without paperwork.
5. Platform Expansion and Development:
- Platform builds on insights from ongoing programs and expands to cover all digital loan types.
- Developed by Reserve Bank Innovation Hub (RBIH), a wholly-owned subsidiary.
- Proposed platform features open architecture, APIs, and standards for seamless connections.
- Financial sector participants can easily integrate through a 'plug and play' model.
- Participation of specific banks broadens the platform's focus.
- Encompasses dairy loans, collateral-free MSME loans, personal loans, and home loans.
- Links with various services including Aadhar e-KYC, e-signing, state land records, satellite data, PAN validation, etc.
- Incorporates data from account aggregators, select dairy cooperatives, and property searches.
- Covers farming operations for loan risk assessment and financial profiles.
- Project's insights lead to wider scope and coverage.
- More lenders and information providers to be included based on learning outcomes.
- Aims to create a comprehensive, accessible, and efficient lending ecosystem.
6. Information Access and Credit Assessment:
- Experts, including the World Bank, highlight improved information access for accurate and fast credit assessments.
- Ensures broader credit extension to borrowers with good credit history.
- Borrowers benefit from lower capital access costs, leading to productive investments.
7. Efficiency and Cost Benefits:
- Traditional credit process involves multiple bank visits and complex documentation.
- This results in higher operational costs for lenders, impacting borrowers too.
- RBI survey suggests farm loan processing took 2 to 4 weeks and costs 6% of the loan's value.
- Lending platform aims to reduce costs, expedite disbursement, and enhance scalability.
8. About RBI Innovation Hub (RBIH)
The Reserve Bank of India (RBI) Innovation Hub, often referred to as RBIH, is a dynamic initiative established by the Reserve Bank of India to drive and nurture innovation in the financial sector. Founded as a wholly owned subsidiary of the RBI, the Innovation Hub serves as a platform that aims to leverage technology and creative thinking to address challenges, explore opportunities, and enhance the efficiency and effectiveness of India's financial ecosystem.
Key Focus Areas: RBIH operates across a spectrum of domains within the financial sector, including but not limited to:
- Payment and Settlement Systems
- Regulatory Technology (RegTech)
- Supervisory Technology (SupTech)
- Financial Inclusion
- Digital Currencies and Blockchain
- Data Analytics and Artificial Intelligence
Impact and Significance:
- The establishment of the RBI Innovation Hub underscores the RBI's commitment to embracing technological advancements and staying at the forefront of financial innovation.
- By fostering collaboration and experimentation, the hub aims to contribute to India's more robust, inclusive, and technologically-driven financial ecosystem.
- In a rapidly evolving digital landscape, RBIH serves as a catalyst for change, channeling innovation toward solutions that enhance financial services, streamline operations, and strengthen the overall resilience of the financial sector.
- Through its initiatives, partnerships, and research endeavors, the RBI Innovation Hub is poised to play a pivotal role in shaping the future of finance in India and contributing to the global discourse on financial innovation.
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For Prelims: Reserve Bank of India (RBI), RBI Innovation Hub, Kisan Credit Card (KCC), Frictionless Credit, Digital Loan Delivery, Regulatory, and Supervisory Technology.
For Mains: 1. "Discuss the role and significance of the RBI Innovation Hub (RBIH) in fostering financial innovation and driving technological advancements in the Indian financial sector. (250 Words)
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Previous year Question1. Consider the following statements: (UPSC 2019)
The Reserve Bank of India's recent directives relating to 'Storage of Payment System Data', popularly known as data diktat, command the payment system providers that
1. they shall ensure that entire data relating to payment systems operated by them are stored in a system only in India.
2. they shall ensure that the systems are owned and operated by public-sector enterprises
3. they shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year
Which of the statements given above is/are correct?
A. 1 only
B. 1 and 2 only
C. 3 only
D. 1, 2 and 3
Answer: A
2. Consider the following statements: (UPSC 2018)
1. The Reserve Bank of India manages and services Government of India Securities but not any State Government Securities.
2. Treasury bills are issued by the Government of India and there are no treasury bills issued by the State Governments.
3. Treasury bills offer are issued at a discount from the par value.
Which of the statements given above is/are correct?
A. 1 and 2 only
B. 3 only
C. 2 and 3 only
D. 1, 2 and 3
Answer: C
3. Consider the following statements : (UPSC 2021)
1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in the public interest.
3. The Governor of the RBI draws his natural power from the RBI Act.
Which of the above statements is/are correct?
A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
D. 1, 2 and 3
Answer: C
4. The Reserve Bank of India (RBI) acts as a bankers' bank. This would imply which of the following? (UPSC 2012)
1. Other banks retain their deposits with the RBI.
2. The RBI lends funds to commercial banks in times of need.
3. The RBI advises commercial banks on monetary matters.
Select the correct answer using the codes given below:
A. 2 and 3 0nly
B. 1 and 2 only
C. 1 and 3 only
D. 1, 2 and 3
Answer: D
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Source: The Hindu
