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rbi loan: RBI’s lending innovation: Can’t prove creditworthiness? Now you will still get a loan

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Millions of Indians fail to get a bank loan for lack of any credit history or any way to prove their creditworthiness. The RBI is now devising an innovative system for banks to extend quick loans. Whether you are a farmer or a small business owner, an innovative digital platform of the Reserve Bank of India’s will make it easier for you to get a bank loan.

RBI Governor Shaktikanta Das, while speaking on the decision of the bi-monthly Monetary Policy Committee meeting today, said that a Public Tech Platform for Frictionless Credit delivery is being developed by the Reserve Bank Innovation Hub (RBIH) for end-to-end digital lending processes. The RBIH is a wholly owned subsidiary of the RBI set up to promote and facilitate an environment that accelerates innovation across the financial sector.

The RBI, in association with the RBIH, started a pilot project in September 2022 for frictionless credit delivery through end-to-end digital processes, starting with Kisan Credit Card (KCC) loans. The pilot for KCC loans is currently operational in select districts of Madhya Pradesh, Tamil Nadu, Karnataka, UP and Maharashtra. Recently, dairy loans have been included in the pilot project in select districts of Gujarat. Based on the learnings from these pilots the RBIH is developing the Public Tech Platform for Frictionless Credit.

Innovative ways to establish creditworthiness
For many farmers or dairy farmers, getting a bank loan is impossible for want of any credit history. But the RBIH platform allows a lender to tap into the data on milk sold by the dairy farmer to Amul or the land records available with the state government to determine the payment capacity.The frictionless credit initiative, which is so far ready for farm and dairy loans, is proposed to be expanded to education loans (using the Digi Locker), MSMEs (based on Udhyam registration and GST and tax records) and even vehicle and personal loans as tests have shown that a loan can be sanctioned in less than 10 minutes. The RBI’s own survey had earlier showed that it used to take two-four weeks to process farm loans and used to cost around 6% of the loan amount.“It will be the equivalent of ONDC for lending. Banks will be able to tap into data from multiple sources to decide on giving loans,” an RBI official had told TOI.The entire process is app-based, which can either be used by the borrower or the bank’s officials, who will deploy hand-held devices and use biometric authentication to verify borrowers’ credentials as well as consent and disbursement of the loan. In case of farm loans, for instance, banks will use PAN, voter ID or other government-issued ID cards and the digitised bank records to process a loan. Currently, five states are on board with more joining in. Similarly, for milk, only Amu’s database of 30 million farmers can be accessed at the moment.

Satellite data or soil health reports can also be accessed by banks, on request, to determine the creditworthiness, for say, a loan to grow wheat, paddy or maize. Based on a Nabard-developed formula, loans are sanctioned according to the land holding.

How it works

Last month, the RBI put up a stall at the venue of the third meeting of G20 finance ministers and central bank governors in Gandhinagar, Gujarat, showcasing its innovative frictionless-credit platform with an informative video explaining the various facets of the initiatives. An experience centre gave a real-life feel of the transformational Digital Kisan Credit Card (KCC) and Digital Dairy journey.

The digital KCC showcases how the digitized land record data can be used to sanction and disburse the loan in a completely digitized and paperless manner without the farmer having to visit the bank branch.

Similarly, digital dairy loan leverages on the digitized milk pouring data available with milk cooperatives and the loan sanction to disbursement process is end-to-end digitalised.

The digitalization of processes substantially reduces the operational expenses and opportunity cost, as also decreasing the turnaround time for loan processing from more than two to three weeks to a few minutes.

The platform envisages a ‘plug and play’ model to which all the financial sector players could connect seamlessly, obviating the need of multiple bespoke bilateral integrations and is expected to bring paradigm change by ushering in a completely digital credit delivery process.

Millions of farmers, dairy farmers and small business owners getting easy access to credit will be a big boost for the economy. It will accelerate the penetration of credit to hitherto underserved regions and further deepen financial inclusion.

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