For many farmers or dairy farmers, getting a bank loan is impossible for want of any credit history. But here is a solution: A new platform by the Reserve Bank Innovation Hub that enables a borrower to tap into the data on milk sold by the dairy farmer to Amul or the land records available with the state government to determine the payment capacity.
The “frictionless credit” initiative, which is so far ready for farm and dairy loans, is proposed to be expanded to education loans (using the Digi Locker), MSMEs (based on Udhyam registration and GST and tax records) and even vehicle and personal loans as tests have shown that a loan can be sanctioned in less than 10 minutes. RBI’s own survey had earlier showed that it used to take two-four weeks to process farm loans and used to cost around 6% of the loan amount.
“It will be the equivalent of ONDC for lending. Banks will be able to tap into data from multiple sources to decide on giving loans,” said an RBI official.
The entire process is app-based, which can either be used by the borrower or the bank’s officials, who will deploy hand-held devices and use biometric authentication to verify borrowers’ credentials as well as consent and disbursement of the loan. In case of farm loans, for instance, banks will use PAN, voter ID or other government-issued ID cards and the digitised bank records to process a loan. Currently, five states are on board with more joining in. Similarly, for milk, only Amu’s database of 30 million farmers can be accessed at the moment.
But satellite data or soil health reports can also be accessed by banks, on request, to determine the creditworthiness, for say, a loan to grow wheat, paddy or maize. Based on a Nabard-developed formula, loans are sanctioned according to the land holding.
When the project started a key challenge was to get banks to rework their processes since their loan origination systems did not interact. “Even if they could access land record details, KYC, credit score or other details, it was not integrated. Similarly, each bank had to get into separate tie-ups with states, making the task tough,” explained another RBI official.