MUMBAI: Stating that quicker relaying of data from credit bureaus will help deepen public trust, efficiency and transparency in the financial system for everybody, the senior-most deputy governor of the Reserve Bank, M Rajeshwar Rao, has asked credit information companies like Transunion Cibil to switch to real-time data reporting from the fortnightly model being followed now.
"We must aspire to more frequent updates. Real-time or near-real-time credit reporting will improve underwriting precision, enable timely reflection of borrower actions like loan closures or repayments and deliver a superior consumer experience," Rao said while addressing a conference organised by Cibil here Tuesday. The RBI shared the speech Wednesday.
Admitting that this entails costs because of investments in technology, process reengineering, and change management, Rao underlined that the benefits will far outweigh the costs.
He also asked credit bureaux and other companies competing with Cibil, including Experian and Crif High Mark, to move towards having a "unique borrower identifier", which is uniform across the system.
"Another key challenge is identity standardisation. Credit bureaux rely on credit institutions to provide accurate and validated IDs. Without this, duplication and misreporting remain main risks," Rao said, explaining the rationale for having such a system.
Rao also exhorted the industry to ensure that innovation is "responsible and accountable", and not at the cost of an individual's rights to data privacy as the extensive use of artificial intelligence and machine learning come model risks, especially when these models are not thoroughly tested, validated, or monitored for biases and performance drifts.
"Rigorous validation protocols, continuous monitoring, and robust governance frameworks are essential to ensure that these models remain fair, transparent, and aligned with regulatory and ethical standards," the senior most deputy governor said, adding the core values of integrity, transparency, and commitment to public service should drive innovation.
With the rapid use of technology in credit delivery, Rao said it is not far when what is called "alternate data" to extend credit to individuals considered "ineligible", becomes mainstream. Microfinance will be one of the biggest beneficiaries of the adoption of AI and ML, he added.
The unified lending interface which is being piloted now will be able to harness data from e-commerce platforms, and gig economy apps could open new doors for credit inclusion for small sellers, delivery workers, and freelancers, he noted.
Rao also pitched for tokenisation, which involves generating and recording a digital representation of financial or real assets on a programmable platform, on the credit delivery front. "Tokenisation can favour small enterprises’ access to credit by narrowing the information gap. Further, small businesses can improve their collateral offering by tokenising real assets or trade receivables, thus improving their standing in the credit markets," he said.
There is a "promising scope" for deeper integration between OCEN (open credit enablement network) and the open network for digital commerce (ONDC), Rao said, adding such interoperability could democratise credit access further and open new avenues for MSMEs to participate in digital commerce.
He said credit bureaus can play an important role in ensuring that the small enterprises get adequate and timely credit from the formal finance system.