The "Account Aggregator" framework was launched by the RBI early this month and Infosys Chairman Nandan Nilekani had said he saw Unified Payments Interface (UPI) like magic in AA system.
An "Account Aggregator" is a unit licensed by Reserve Bank. What does it do? With the consent of a borrower, it lets a bank that is giving him a loan, see his data in other banks. It makes it easy for a bank to judge the borrower's creditworthiness.
Credit bureaus give banks credit information of borrowers, how regularly they pay their loans. The Account Aggregator gives deposit information - tells the lender how much assets the person has.
Credit bureaus analyse the borrowers' repayment records, give them a credit score depending on the regularity of repayment. Account Aggregators can't even see the borrower's data, they merely let the lending banks or NBFCs see the data for a limited period.
Of late other data providers like GSTN have also agreed to share their data with Account Aggregators. But how does it helps the borrower?
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The borrowers benefit because they don't have to go to the bank carrying all the bulky bank and tax statements. A borrower can give his consent and the bank, which is going to give the loan, can get the information with just a few clicks from those who have that information.
It is expected that soon Account Aggregators, banks, NBFCs, and fintechs will be able to look at even small items like Jan Dhan accounts and give these hitherto excluded people more loans, thus, ensuring financial inclusion.
Rajnish Kumar, former Chairman of SBI, and Eco Adviser of Andhra Govt, said, “There is a very crucial difference so the difference here is that one online availability of information about a client, and a client may have an account with different banks. So one way is that the client collects information from the different banks and it is not only banks, it is a mutual fund where he will be holding stocks, holding insurance policies."
"So it would be a much simpler way that a borrower or a potential borrower, he authorises, consent is very important in the scheme of things, downloads, application, front-end application of an account aggregator, authorise sharing of that data, and that data comes to the bank. So they get a holistic view and you don't have to do the running around. So like anything which is digital, it puts more power into the hands of the consumer.”
NS Vishwanathan, former Dy Guv of RBI, said, “This is a case of an individual being empowered to use his data in a meaningful way for his advantage. This is a place where all this thing can be seen as Rajnish Kumar said in a digital way in one place. We are moving from what you call the physical collateral to information collateral, and this puts that collateral in a, in a what you call structured manner, that decisionmakers are able to use it to provide financial services that they wouldn't have been able to do without this information.”
Rajesh Kumar, MD & CEO of CIBIL, said, “I think this is a very progressive step for India because of the uniqueness and world over I have not come across any such framework being developed, which is so democratised and federated in terms of readily and easily usable consent architecture through which as we just spoke about each of us as individuals can really realise the power of or the value from data, which we should be the owners to get better deals for ourselves.”
He added, “When it comes to CIBIL, specifically, our core business is really to use the information for good, to create trust in the lending marketplace, because there are those 1,000s of millions of people out there whom the lender is not aware of at all. CIBIL came in as a nice little collateral, which created trust. Now, this beautiful framework that we are talking about only increases the available information, which means better and better decisions. People like us at CIBIL we know the lending business so it actually enhances our role.”
For full interview, watch accompanying video...