Page 28 - Banking Finance September 2022

ARTICLE

launched with access only to banks and later other entities
will be allowed, according to a report. The move is a step
ahead of the Central Repository of Information on Large
Credits, where lenders can have information on large
credits. A PCR will eventually cover all lenders, borrower
accounts without any size threshold, even though at the
very early stage the plan is it would cover loan sizes only
above a certain threshold.

The primary reason for building a PCR is to provide a 360-
degree view of a borrower's liability and remove information
asymmetry, which often leads to a breakdown in the credit
market. The secondary reason for PCR is to provide bankers
with up-to-date information about their credit process.
There is no reason why the PCR can't be linked with all cash
power of data analytics and machine learning banks will be
flows that are going in and out of last-mile borrower's able to give individualized financial products.
transactions,
An Important Step to Democratize and
while a public credit registry will help discipline large
borrowers; it will open up doors of credit for the relatively Formalize Credit
underpenetrated banking system. In an emerging economy like India, it is always felt that the
smaller entrepreneurs, mostly operating under the informal
How PCR would work economy, do not get enough credit as they are information
The PCR can be linked with all cash flows that are going in wise opaque to their lenders who prefer to provide loans to
and out of last-mile borrower's transactions. Then instead more transparent larger businesses. Data as of March 2018
of asking for collateral and doing asset-based banking, the of scheduled commercial banks (SCBs) from RBI's basic
banks could rather shift to cash flow-based lending. There statistical returns (BSR) shows that close to half of the
would be a scope to expand lending to borrowers who find outstanding credit is for ticket size above a hundred million
it hard to provide any collateral. Also, an account rupees and thirty per cent is above one billion rupees. Credit
aggregator that would be a record of the borrower's assets penetration is particularly low for Micro, Small and Medium
can complement the PCR. In some cases, the assets may be Enterprises (MSME) sector where the ticket size is generally
very small and in cash flows, yet the aggregator over time believed to be between one to ten million rupees. Even
can still complement the PCR quite well. though more than 95 per cent of accounts with SCBs are
having sanctioned credit limit less than one million each, the
The account aggregator has to manage how other financial amount outstanding on these accounts is only 23 per cent
institutions can access the borrowers' data, which can be of the total.
gathered from all financial institutions, including banks, non-
banks, mobile money wallets, mutual funds, tax agencies, Is there a big opportunity for us to rethink and reshape our
GST invoices. Together PCR and aggregator will allow credit eco-system for the future so that micro credit can
financial intermediaries and borrowers to see in real-time thrive to unlock economic value? RBI has initiated work on
the complex pattern of financial cash flows of individuals and a Public Credit Registry (PCR). All are excited about how PCR
businesses, the PCR providing the liability side of the can solve in a fundamental way the information problem
information and the account aggregator the asset side and affecting access to credit for micro entrepreneurs.
the cash flow side. "With these systems kicking in the coming
months and years, banks will be able to lend judiciously to Information asymmetry with the borrower is the major
India's large underserved population. By employing the difficulty faced by any lender while granting a loan. Put

28 | 2022 | SEPTEMBER | BANKING FINANCE