Credit, savings, insurance next frontiers in financial services: RBI DG

Reserve Bank of India's deputy governor, Shirish Chandra Murmu, has highlighted that the next frontier in financial services is to make credit, savings, and insurance as commonplace as digital payments. Speaking at the Global Fintech Fest, Murmu emphasized that technology should broaden the scope of formal credit opportunities, not merely speed up existing lending processes. Better data collection is crucial for reaching borrowers previously overlooked by the formal financial system, Murmu stated.

He noted that entities like fruit and vegetable vendors, who use QR codes, are already part of the formal financial system. However, Murmu raised significant questions about how credit decisions are communicated to applicants, particularly when algorithms reject applications without clear explanations. Additionally, he addressed concerns about account freezes due to fraud detection systems and the time it takes for customers to regain access to their accounts.

Murmu stressed that technology should enhance the accessibility of formal credit, improve decision-making, and provide better terms for borrowers who have been traditionally underserved. He warned against allowing technology to overshadow the responsibility of regulated lenders and urged borrowers to remain informed about their lenders, the cost of loans, and the terms associated with the credit. He stressed that technology can distribute a service but cannot replace the responsibility of the regulated entity.

Murmu also highlighted the importance of transparency in data sharing, stating that once a customer authorizes data sharing, they should understand how their data might be used in the future and have the ability to withdraw that permission. He made it clear that while algorithms play a role in financial decision-making, the ultimate accountability lies with the regulated institution.

This includes boards and senior management understanding the models they use, their limitations, and the potential consequences of their deployment.

In response to reporters' inquiries, Murmu mentioned that the central bank is currently evaluating responses to its draft norms on revolving credit. The RBI had recently proposed restrictions on revolving loan products, except for credit card issuers. A revolving loan permits borrowers to draw down, repay, and re-draw loans within a predetermined credit limit.