RBI MPC 2023: Governor Shaktikanta Das proposes setting up a fintech repository

To keep track of fast-evolving fintech companies, the Reserve Bank of India (RBI) has proposed establishing a fintech repository to facilitate the sharing of relevant information. This comes amid a surge in retail lending in the country, driven by the increasing popularity of digital loans as more consumers seek multiple credit products within a short time span.

"The proposed FinTech repository is an important piece of regtech infrastructure which will act as an authentic source of transparent information about fintech firms in India. This becomes much more important, especially in the context of emerging issues like unauthorised lending apps and cyber frauds, It will help regulatory and Law Enforcement agencies as well as end users to make a clear distinction between good and bad actors.  At Digital Lenders Association of India (DLAI), we also have a  similar initiative called DLAI-Digital credit Observatory for its members, with a basic layer of information (of its members) along with knowledge pieces like research reports etc. As a leading industry association for digital lenders in India, DLAI  and its members will be open and willing to contribute to the repository”, we look forward to detailed guidelines," said Jatinder Handoo, CEO, DLAI.

To facilitate lending, fintechs tie up with NBFCs or banks, and leverage tech to streamline the application and disbursement process. Customers can easily apply for loans through apps by submitting the required documents, which are authenticated using a number of digital tools. Often, the loan is disbursed within hours. The pandemic also helped fintechs shine because they could serve customers from a distance. 

"By collecting and sharing detailed information on various fintech entities, the repository will increase transparency in the sector. This is crucial for stakeholders, including consumers, lenders and fintechs, as they will have access to reliable data, fostering a deeper trust and a supportive environment for cross-collaboration, growth and innovation. The Repository's focus on technologies like DLT, AI/ML, and others, shows a commitment to understanding and supporting technology-led innovations in the financial sector," said  Movin Jain, Founder, Skydo, a cross-border payments platform.

“Financial entities like banks and NBFCs in India are increasingly partnering with fintechs. For better understanding of developments in the fintech ecosystem and to support this sector, it is proposed to set up a Fintech Repository. This will be operationalised by the Reserve Bank Innovation Hub in April 2024 or earlier. Fintechs would be encouraged to provide relevant information voluntarily to this Repository,” said RBI Governor Shaktikanta Das after the MPC meeting.

The partnership with fintechs is one reason why there has been a spike in unsecured loans of NBFCs; according to a report by rating agency ICRA, the number rose to about 23 per cent of the retail NBFC AUM in March 2023, from 17 per cent in March 2021. Per a Reserve Bank of India report, 53 per cent of loans disbursed by NBFCs, and 10.8 per cent of the total amount disbursed, came through digital channels. In the case of banks, only 6.04 per cent of loans and 2.07 per cent of the total amount disbursed was through digital channels.

TransUnion CIBIL October report studied the rapid increase in the adoption of small-ticket personal loans and the impact of this increase on the overall retail lending book in Q2 2023, as the credit industry landscape has changed significantly over the last four years. As per the report since Jan 2022, small-ticket personal loans of less than Rs 50,000, while representing a very small share of total retail balances, have accounted for approximately 25% of total origination volumes. As a result, the proportion of credit active consumers availing small-ticket personal loans has increased to 8% in June 2023, from 3% in June 2019.

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The report indicates a 15% year-on-year increase in credit supply in the second quarter of 2023, as measured by originations. Small-ticket personal loans of less than Rs 50,000 account for 0.3% of the total retail loan book size at an industry level. “Even though delinquencies on small-ticket personal loans have a marginal impact on the personal loan portfolio, these need to be monitored closely, especially because consumers may prioritise other payment obligations ahead of personal loan payments, which in turn may be a wider indicator of financial stress,” TransUnion CIBIL said in a press release.

With the rise in growth numbers there is increase in delinquency as well in small ticket loans. For consumers having at least one small-ticket personal loan, the balance-level delinquency rate was 5.4%, marking an increase of 120 bps (basis points) since Q2 2022. Though delinquencies on small-ticket personal loans have a marginal impact on the overall retail loan portfolio, which looks at the outstanding balances of all retail products including home loans, auto loans, credit cards, personal loans, and others, the numbers have been rising steeply. 

Once the repository is set up, it will be easier for the regulator to track developments in the fintech sector. "The Repository's ability to curb fraudulent activities is also a major benefit. By enabling cross-institutional analysis of FinTech data, it will become a powerful tool in identifying and preventing fraudulent transactions. This not only safeguards the interests of lenders but also enhances the stability of the FinTech system, benefitting both lenders and borrowers alike, bringing safety and predictability. It also reduces operational costs and risks, which is key to building a healthy lending ecosystem," said Jain.