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Critical Topics and Their Significance for the UPSC CSE Examination on September 03, 2024

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What is the Unified Lending Interface by the RBI?

For Preliminary Examination:  Current events of national and international importance

For Mains Examination: GS II & III - Unified Payment interface, NPCI

Context:

The Reserve Bank of India (RBI), as part of its strategy to create digital public infrastructure in the country, has announced that a new technology platform called the Unified Lending Interface (ULI) would be introduced by the Reserve Bank Innovation Hub, Bengaluru which will enable friction-less credit to farmers and MSME borrowers to begin with.

Read about:

What is Unified Lending Interface (ULI)?

What is the National Payment Corporation of India (NPCI)?

Key takeaways:

As part of its initiative to develop digital public infrastructure, the Reserve Bank of India (RBI) has announced the introduction of a new technological platform called the Unified Lending Interface (ULI). This platform, developed by the Reserve Bank Innovation Hub in Bengaluru, aims to facilitate hassle-free credit for farmers and MSME borrowers.

What is ULI?

• The Unified Lending Interface (ULI) is designed to enable the smooth transfer of both financial and non-financial digital data from various service providers to lenders, making credit assessments easier and borrower experiences more streamlined.
• According to Rajesh Bansal, CEO of the Reserve Bank Innovation Hub, this platform supports the consent-based flow of digital information, including state land records. This will significantly reduce the time required for credit evaluation, particularly for smaller, rural borrowers without a credit history.
• ULI's architecture features common and standardized Application Programming Interfaces (APIs) that allow for a 'plug and play' model, facilitating digital access to information from multiple sources. This approach simplifies technical integrations and enables borrowers to access credit more quickly, reducing the need for extensive documentation.
• Lenders will be able to access customer data from diverse sources, including government databases like land records and satellite images, through standardized APIs. FinTech companies will also have the opportunity to connect with multiple lenders via the platform, allowing for better customer insights and service.

How will it work?

• First-time loan applicants, often without a credit history or necessary documentation, usually find it challenging to secure bank loans. With ULI, however, digital credit information can be accessed through a single platform, providing data providers and lenders with the information needed to meet the needs of prospective borrowers.
• ULI not only allows access to data about a loan applicant’s financial activities but also provides financial institutions with this data through a straightforward 'plug and play' connection to the platform. Consequently, loan applicants no longer need to spend weeks gathering documents, as banks, NBFCs, or FinTechs can directly retrieve the necessary information from sources linked to the ULI platform.
• For example, a dairy farmer seeking a loan could have their cash flow assessed from data provided by milk cooperatives, verify land ownership through state land records, and evaluate financial status through farming patterns.
• What was once an unclear area for lenders now becomes transparent, enabling informed business decisions. Using ULI, lenders can quickly determine a loan applicant’s income and creditworthiness, leading to automated decision-making and the rapid approval and disbursement of loans.
• Even tenant farmers, who typically struggle to obtain ag