Demonetization has created an enormous opportunity to channelize public savings into productive assets. Linking financial data and consolidating existing data for SMEs and corporates can provide banks with the necessary information to assess creditworthiness of borrowers, said the Confederation of Indian Industry (CII). This can also enable banks to devise a tailored interest rate policy by differentiating borrowers.
“A digital infrastructure providing comprehensive data to financial institutions would help smoothen access to credit from the borrower’s angle and assessment of credit worthiness from the lender’s side. It would supply identification, financial information, credit information and other information related to governance of a company,” said Mr. Chandrajit Banerjee, Director General, CII. “The data is present in the system, though the ownership is with different Government bodies. It is possible to thread these data accesses together for a well-connected digital infrastructure that can enable banks to lend to credible borrowers. Naturally, this is also a mechanism to avoid creation of NPAs at a later date.”
CII has suggested that abundant data on SMEs and corporates through various sources can be made available to the Banks and other lending institutions. The banks will benefit from authentic financial and other data to accurately identify the right customers. Customers will gain from hurdle-less access to credit. The banks may choose to offer loans at varied interest rates depending on the strength of the data of the customer, said CII.
The data for establishing identification of the borrowing entity can be procured through PAN, TIN/CIN/ GSTIN (post launch of GST), Articles of Association (AoA), and Memorandum of Association (MoA). Financial information required by the banks to assess the liquidity condition of the entity can be available from sources like annual returns which are available with Ministry of Corporate Affairs (MCA) as scanned documents, Form 26 AS with Income Tax authorities, and Provident Fund data with Employees Provident Fund Organisation (EPFO).
Property Tax, Utility Bills, Securities data etc. can also be included in the comprehensive digital database. Credit information is available with Central Repository of Information on Large Credit (CRILC). Other information like shareholding pattern, list of directors etc. is available with MCA. All the data which exists in independent silos needs consolidation to provide the requisite information to the lending entity.
There have been multiple efforts to collate data in India in the past. The Ministry of Micro, Small and Medium Enterprises (MSME) recently promulgated orders for creation of an MSME databank through self-reported forms. The Udyog Aadhar will generate a single business identification code for classifying companies by industry and activity.
CII proposes a 3-step process to make the data available within the larger ecosystem of digital infrastructure.
To start with, the data needs to be made available digitally by strengthening the existing digital data sources as required by expanding CRILC coverage to include Mutual Funds (MF), Financial Institutions (FIs), and External Commercial Borrowings (ECBs). Providing digital data instead of scanned documents (e.g., AoA, MoA etc) as also investing in making existing data digitally available by providing existing data (e.g., income tax, CENVAT, PF, property tax) directly to banks. It would help to, ab initio, architect new sources of information to provide digital access to information like information utility (under bankruptcy law), registry of securities (SARFAESI), GSTN and to use Account Aggregation guidelines as core of consortium / multiple banking.
The second step is to design the architecture for data sharing by reaching an agreement on mode of data sharing (e.g., Application Programme Interface (API) integration of each institution directly with banks or a central integrating agency to co-ordinate and share consolidated information). Developing standard architecture for data sharing (e.g., API definitions, encryption protocols) and creation of standardized authentication and consent mechanisms is also required.
The final step would be to build supporting infrastructure through APIs, build supporting consent and authentication architecture and cyber security architecture to ensure data security.
“A robust credit data infrastructure will allow banks to better analyse the financial data by way of triangulation of information and also provide greater industry insights. While for larger corporates this would enhance banks’ ability to access credit worthiness, it would also lower costs and potentially ease the flow of credit to MSME segment” said Ms. Shikha Sharma, Chairperson, CII National Committee on Banking and Managing Director & CEO, Axis Bank
Digital data can help significantly enhance access to credit for SMEs and to monitor corporate credit performance. For instance, a kirana shop owner wants to apply for a loan. She approaches the bank website and authenticates herself using Aadhar and also provides PAN for business verification. She also provides consent to the bank to get access to Financial Statements, Income tax filing & GST filing, Bank statements and credit history. The Bank obtains data digitally from concerned authorities through API calls, makes an analysis and offers a loan on interest rates as determined by the data.
“Creating suitable and comprehensive digital data infrastructure will provide banks the ability to identify fraud/ data manipulation and stress early while help corporates get access to cheaper credit” said Mr. Arun Tiwari, Co-Chair, CII National Committee on Banking and Chairman & Managing Director, Union Bank of India
Such a system is used in some other countries and can greatly facilitate financial institutions to avoid undue risk in disbursing loans in the wake of demonetization, said CII.