New Delhi: The Indian government is set to implement a new strategy that leverages digital footprints to assess creditworthiness.
Financial Services Secretary Vivek Joshi revealed this innovative approach in a post-Budget interaction with media.
The new mechanism aims to replicate the success of the home loan model in the small business sector, which has long remained in a “loan shadow zone.”
Banks will now be encouraged to analyse a range of digital data points, including salary payments, utility bills, municipal taxes, GST returns, and provident fund details.
“Often the bank manager knows that a small businessman is doing good business, but the rules bind him from giving a loan,” Joshi explained. “The new mechanism will help provide funding. The bank accounts by themselves can provide so much information on a borrower.”
This shift marks a departure from the traditional lending process, which heavily relies on balance sheets and income tax returns. The government believes that this data-driven approach will enable banks to appraise businesses even in their early stages of operation.
In line with this initiative, Finance Minister Nirmala Sitharaman announced a new credit rating mechanism in the recent Budget. While banks will develop their own frameworks, the Indian Banks’ Association may discuss some broad parameters.
The Reserve Bank of India’s “frictionless credit” system aligns with this direction, utilising digitised land records, MSME registration data, and even records of milk sales to cooperatives like Amul to offer loans within 10-15 minutes.
Joshi also addressed the need for public sector banks to improve their customer service and efficiency in collecting low-cost current and savings account (CASA) deposits.
He noted a decline in the share of CASA deposits to 41 per cent at the end of March, down from 44-45 per cent in previous years.
On the topic of bank privatisation, Joshi mentioned that the government is considering amendments to the bank nationalisation law, a necessary step to proceed with the 2021 announcement to privatise two state-run banks. However, he firmly dismissed rumours of fresh mergers among public sector banks as “pure speculation.”
The finance ministry has sought waivers for five public sector banks and two insurance companies from the minimum public float requirement of 25 per cent, typically granted by SEBI for two years.
Regarding the state-run general insurance sector, Joshi indicated that the government would monitor the performance of Oriental, National, and United India insurance companies before providing additional recapitalisation funds. Over the past three fiscal years, the government has already injected Rs 17,450 crore into these entities.
