Nandan Nilekani calling the launch of Account Aggregators (AAs), “another UPI moment” has made everyone sit up and take notice. But the word itself is still tough to understand.
So let us begin with what these new entities are. AAs are financial intermediaries licenced by the Reserve Bank of India (RBI). Their purpose is to allow a lending bank or NBFC “see” all the financial data of a borrower, with just a few clicks. Today when a borrower – an individual, small and medium enterprise (SME) – goes to the bank for a loan, he or it has to go armed with its bank and tax statements to convince the banks of its net worth. The AA cuts down the time and effort.
The AA is not a financial company. It is more a technology company. Like Google, it pulls all the relevant financial information about the borrower, at the click of a button, and places it in front of the lending bank or NBFC or fintech, so that the lender can assess the credit worthiness of the borrower.
Here it is important to understand how AAs differ from credit bureaus. Credit bureaus like CIBIL also make it easy for a bank to assess a new borrower. The difference is credit bureaus assess the credit information of a borrower- how many loans he has taken and how regularly he has repaid them. But a bank which has to lend, is in a better place to assess the borrower if it knows how much deposits he has, as also how many investments in mutual funds, insurance companies and pension funds he has. Indeed now the GSTN has also agreed to provide GST information of the borrower via the AA to a potential creditor. The flow of GST credit can give a bank much comfort of the business of the SME borrower.
The AAs are particularly useful for SMEs and micro-enterprises. Here’s why: Indian banks normally prefer giving loans based on collateral provided by the borrower. Here’s where the MSME and SME lose because they have hardly any land, plant or machinery to provide as collateral. Here, a bank, looking at its past record of cash flows into its bank account, and its past GST payments can arrive at a reasonable assessment of the MSMEs business. Hence cash-flow based lending becomes possible. As former RBI deputy governor, NS Vishwanathan says, “AAs will help us move from physical collateral to information collateral, as the basis for lending.”
Important to add, that a lending bank can source information on the borrower, only with his consent, so at all times, the borrowers’ privacy is protected.
AAs are expected to usher unprecedented financial inclusion. A fintech or an NBFC should be able to look at the savings accounts of casual labourers and small self-employed persons, in far-flung areas and be able to loan them money depending on the regularity of their incomes. MSMEs, already getting some loans may get more loans if banks can see their GST tax credits.
Today RBI has allowed only entities regulated by some financial regulator to provide information to the AA. In future, if electricity companies and telecom companies are also allowed to share their customer data, it may vastly increase the number of people whom banks, NBFCs and fintechs may be willing to lend. This can increase the productivity of the entire economy and this explains why Nilekani calls it possibly “another UPI moment”.
Going forward, it is possible that the technology behind the AA allows regulators to connect related parties and establish audit trails too. In that sense, AAs may also be the start of a “google” moment for financial regulators. Technology may allow regulators to get so much connected information about a company that, regulators, auditors or investigating agencies may be able to smell out favours to related parties or siphoning of monies to related entities more easily.
All told, like COWIN or Aadhaar or Jan Dhan, AAs may universalise the availability of public good – in this case finance – and result in higher productivity and growth for the economy.
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