Banking in India underwent a significant transformation around and after the demonetisation exercise when the trinity of Jan Dhan accounts, Aadhaar and mobile payments – JAM – became effective. Accessibility of savings bank accounts to the rural hinterland also escalated the advent of cashless transactions. The rural and excluded bottom of the pyramid segments surprised the world by adoption of smartphones and digital payments. Timely initiatives by the Reserve Bank of India introduced the concept of business correspondents as local cash dispensers for banks and for sourcing business.
Thanks to hand-held devices, the micro-lending segment has taken a lead in the use of digital solutions. From getting onboarding details of borrowers online and checking their KYC credentials as well as credit scores online to analysing their loan eligibility – the micro lending segment has adapted to the digital wave like a fish takes to water.
In fact, now the turnaround time from client identification to loan disbursals has reduced to less than a week. This includes cashless crediting of loan disbursements to the borrowers’ bank accounts. Digital platforms also offer life insurance policies online to borrowers and their critical family members at the time of loan onboarding, if a customer is interested. This has helped improve the average loan portfolio managed by a loan officer significantly and ensured early breakeven levels for bank branches.
Besides the microlending sector, fintech platforms have also been effectively used for lending to rural and micro SME segments. This segment is largely unsecured. Their credit is approved based on cashflow assessments and on the basis of large data analytics models of customer segments. Several parameters like business categories, geographies, cultural backgrounds, family details of the borrower and a host of other aspects help fintech lenders decide on lending to such customers. All these parameters are churned dynamically with actual portfolio data and credit bureau scores of repayment behaviour of these customers. Digital models play a critical role on client selection and loan amount sanctions. Here again the turnaround time for decision-making and approval is reduced by digital onboarding devices that help in clearing client data on a real-time basis.
Digital platforms, thus, have enabled reaching out to the erstwhile unbanked groups by offering them small loan sizes and yet making their models viable.
Smart developments by corporate houses and small and medium enterprises are being done on the digital front with significant changes being accelerated, especially in a post-COVID scenario. Usage of satellite and virtual data for collateral survey and valuations is a new service. Using GPS coordinates to plot the exact location of an industrial activity, video verification of the facilities and virtual verification of customer activities are improving.
The availability of online data on income tax and GST returns and all government statutory details are already available for credit evaluation and monitoring of activities. Virtual and digital uploading of stock and monthly GST returns are useful for evaluating utilisation of funds. The Central Repository of Information on Large Credits (CRILIC), which collects, stores, and publishes data on all borrowers’ credit exposures; corporate credit verification of clients and client data verification through tertiary sites help provide details on common borrowers and defaulters. Digital documentation has also made strides on the trade side for online remittances and returns.
Presently, however, bottlenecks exist with respect to state-level documentation processes like registration of mortgages and physical documentation pertaining to customs and shipping. This is, however, likely to be digitised in the near future.
The COVID-19 lockdown has created an opportunity to experiment and speed up the digitisation process. Since physical contact with clients has been restricted, banks have had to scale up and speed up the usage of digital initiatives. Seamless digital documentation for client onboarding is set to become the next major need for banks as physical distancing of customers and limited employee attendance at workplaces has become the new normal.
The role of the government in speeding up the digital infrastructure and the initiatives of various regulators has also given a significant push to these initiatives. Even as the physical infrastructure in our country has lagged behind, the government is keen to ensure that the advances on digital infrastructure in our country will, to a large extent, overcome the limitations to ease in doing business. By offering digital solutions, banks will play a major role in making it easier to avail credit.
Disclaimer: Views expressed are personal
