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

Having made digital payments a common occurance, the next challenge for the financial ecosystem is to extend that same ordinariness to credit, savings and insurance, Reserve Bank of India (RBI) deputy governor Shirish Chandra Murmu said in his key note address at the Global Fintech Fest (GFF).

"Technology should widen the frontier of formal credit, not merely make existing lending faster; better data must increasingly be directed towards borrowers the formal system has never served," Murmu said.

He said fruit and vegetable vendors with the printed QR code are already part of the formal financial system. The harder questions are whether she will be offered credit on terms she can understand.


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"If an algorithm declines her application, will anyone be able to tell her why? If her account is frozen by a frauddetection system, how long before she can trade again? Those questions are the real

content of trusted innovation, and how we answer them will matter more than any

technology we deploy," Murmu said.

He said that technology should widen the frontier of formal credit, not merely make existing lending faster.

"Better data must increasingly be directed towards borrowers the formal system has never served. Credit decisions affect households for years. The objective cannot simply be to make credit faster. It must also be to make credit better," Murmu said.

Using technology and algorithms do not dilute the responsibility of the regulated lender and borrowers must know who is lending to them, what the loan costs

and what its terms are.

"To put it plainly: technology can distribute a service, but it cannot distribute responsibility....(it) should widen customer choice rather than steer customers towards unsuitable products. Partnership models are valuable, but the regulated entity remains accountable for services delivered in its name," he said.

If a customer authorises data sharing once, she should understand how it may later be used — and be able to withdraw that permission.

Algorithms cannot be held accountable for financial decisions. "Responsibility rests with the regulated institution, and boards and senior management must understand the models they deploy, their limitations and the consequences of their use. As finance becomes more automated, human

accountability must become stronger, not weaker," Murmu said.

Later in response to some reporters' questions, Murmu said the central bank is still assessing responses to its draft norms on revolving credit.

Last month, the RBI proposed a restriction on revolving loan products, unless they are credit card issuing companies. A revolving loan allows borrowers to draw down, repay and re-draw loans within a predetermined credit limit.