The Indian fintech sector could be in for a complete transformation with cutting edge technology driving the business and access to lending for individuals made far easier and more convenient. This, if the government-appointed committee goes about doing its task as per the recommendations of another committee on the subject.
The new scenario could see banks offering loans directly through their mobile apps and the present-day distinction being made between the regular banks and non-banking companies or NBFCs and other lending entities removed completely and so on. There is the suggestion to digitise land records so that lending against property can be undertaken online without having to make any physical checks.
It all started with an announcement in the Union Budget 2018-19 presented by the then Finance Minister Arun Jaitley. Based on this, a committee was set up with the secretary in the Department of Economic Affairs heading it and had senior officials from other departments, Reserve Bank of India and the Securities and Exchange Board of India (SEBI) as its members.
This committee has made some far-reaching recommendations in its report submitted to the present Finance Minister on Monday. It is understood that the FM has now constituted an inter-ministerial panel to find ways to implement these recommendations.
The key recommendation of the panel relates to developing a marketplace model instead of a highly regulated model in the case of peer-to-peer or P2P lending. The panel has even suggested that the lending activities under the Mudra scheme be merged with the P2P lending platforms so the MSMEs can directly access credit from these platforms without any hindrance.
Another important recommendation by the panel where the banking regulator RBI will have to play a direct role is with regard to the classification of lenders within the digital payments ecosystem. Here, competition and innovation must be given full credit and there should be no discrimination between different lenders.
Within the regular banking system, as mentioned above, the panel has suggested to the Department of Financial Services and the RBI that they look at the possibilities of banks being allowed to change their basic banking model itself. The panel says a bank does not have to open a branch to give loans. Its app can be used by the customers to apply for and obtain loans. Many regular retail banking services can also be offered through this approach.
Again, as referred to above, the panel has recommended that a National Digital Land Records Mission be set up to create an online database of land ownership so that the financial institutions can tap into this and deploy latest technologies like artificial intelligence while evaluating loan applications against properties. It has even suggested that insurance firms offering crop insurance products to farmers can use drones to inspect the farmland before issuing the policy.