Published: 24th Aug, 2023
Context
The RBI has announced a pilot programme for ‘Public Tech Platform for Frictionless Credit’ which would strive to deliver frictionless credit by facilitating seamless flow of required digital information to lenders.
About Public Tech Platform for frictionless credit (PTPFC):
- The Public Tech Platform for frictionless credit is an end-to-end digital platform that has been developed by the Reserve Bank Innovation Hub, a wholly-owned subsidiary of the central bank.
- Developed by: The public platform will be developed by the Reserve Bank Innovation Hub (RBIH).
- The newly launched Public Tech Credit platform will help in seamless disbursal of non-collateral based loans for Micro, Small and Medium Enterprises (MSMEs), Kisan Credit Card loans up to Rs 1.6 lakh, dairy loans, personal loans, and home loans.
- Objective: The aim of the pilot project is to connect borrowers and lenders, which will make credit more accessible to millions of individuals looking for small loans.
How will it work?
- The platform has been designed to have open application programming interface (API) standards, which will allow other financial institutions to readily adopt it into their systems. Instead of having discrete information systems, the centralisation of borrower information can make it much easier for new loan applicants to avail credit facility.
- It is expected to linkage with services like Aadhar e-KYC, Aadhar e-signing, land records from on-boarded state governments (Madhya Pradesh, Tamil Nadu, Karnataka, Uttar Pradesh and Maharashtra), satellite data, PAN validation, and transliteration, account aggregation by account aggregators (AAs), milk pouring data from select dairy co-operatives, and house/property search data.
- Significance of the Programme:
- It ensures that credit or other financial instruments are extended to a larger set of borrowers with good credit history.
- It would provide a basis for improved credit risk and overall credit portfolio management.
The Credit appraisal process for loan reimbursement:
- Digital delivery of credit (or delivering credit/loans though digital means) is preceded by a process of scrutiny known as credit appraisal.
- The process attempts to evaluate and accordingly predict the prospective borrowers’ ability for repayment of credit/loan and adhering to the credit agreement.
- The process rests on three important pillars, namely, the problem of adverse selection (that results from the asymmetry of information from either the borrower or lender), measurement of exposure risk and the assessment of default risk (the probability that the borrower may default in repayment).
- This pre-disbursal process is particularly important for banks since it would in turn determine their interest income and impact on the balance sheet.
How will it help in MSME and Kisan Credit Card Loans?
- The effect of the PTPFC has been immediately seen with few banks announcing that it will be launching Kisan Credit Card (KCC) and unsecured MSME loans to small business customers through the platform.
- Once the pilot programme is over, the RBI will be taking a look at the programme and further extend the scope of the project.
- Future changes to the program include adding more products, and providers, as well as onboarding more lenders.
- As the project expands, the PTPFC is expected to further improve credit access to more underserved areas of the country.
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