‘Frictionless credit initiative cuts operational costs for lenders by 70%’

Mumbai: The frictionless credit initiative being piloted by the Reserve Bank is helping lenders slash their customer acquisition cost by a whopping 70 per cent, while for borrowers the saving is 6 per cent of the loan amount, a senior RBI official has said.

The pilot started with an all-digital KCC (kisan credit card) lending, developed by the RBI Innovation Hub on the public tech platform, in Tamil Nadu and Madhya Pradesh this April. The pilot has been extended to four more states — Maharashtra, Uttar Pradesh, Karnataka, Gujarat (for dairy farmers) from August 17 this year.

The pilot launch of the public tech platform for frictionless credit to farmers has helped reduce operational costs for lenders by more than 70 per cent, while for the farmer, the saving is 6 per cent of the loan amount, Ajay Kumar Choudhary, an executive director and head of the fintech department at the RBI, said here over the weekend while addressing the three-day global fintech festival.

Moreover, there is massive savings in opportunity cost, as earlier a farmer had to make six to eight weekly rounds to the bank which has come down to a maximum of 0 minutes now, Choudhary said.

He further said this has also reduced traditional charges that banks used to levy from borrowers, as with all documents available digitally, there is effectively no cost in customer acquisition with this model of lending.

The platform was created by the RBI Innovation Hub, an independent subsidiary of the central bank, enabling seamless flow of necessary information to lenders.