Demonetisation Likely To Push Up Credit From Banks: Industry Body

New Delhi: Demonetisation has led to channeling of public savings into the formal sector, which is likely to give a boost to credit from the banks, that may go for a differentiated interest rate policy on the basis of creditworthiness of borrowers, a top industry body said on Monday.

"Demonetisation has created an enormous opportunity to channelise public savings into productive assets. Linking financial data and consolidating existing data for SMEs and corporates can provide banks with the necessary information to assess creditworthiness of borrowers," Confederation of Indian Industry (CII) said in a statement here. 

"This can also enable banks to devise a tailored interest rate policy by differentiating borrowers," the statement added.

CII suggested that abundant data on small and medium enterprises (SMEs) and corporates through various sources can be made available to the banks and other lending institutions. 

The banks will benefit from authentic financial and other data to accurately identify the right customers while the customers will gain from hurdle-less access to credit. 

The banks may choose to offer loans at varied interest rates depending on the strength of the data of the customer, it said. 

"A digital infrastructure providing comprehensive data to financial institutions would help smoothen access to credit from the borrower's angle and assessment of credit worthiness from the lender's side. It would supply identification, financial information, credit information and other information related to governance of a company," Chandrajit Banerjee, Director General, CII said.

"The data is present in the system, though the ownership is with different government bodies. It is possible to thread these data accesses together for a well-connected digital infrastructure that can enable banks to lend to credible borrowers. Naturally, this is also a mechanism to avoid creation of non-performing assets (NPAs) at a later date," Banerjee added.

Financial information required by the banks to assess the liquidity condition of the entity can be available from sources like annual returns which are available with Ministry of Corporate Affairs (MCA), income tax authorities and provident fund data with Employees Provident Fund Organisation (EPFO).

All the data which exists in independent silos needs consolidation to provide the requisite information to the lending entity, it said.

"Property tax utility bills, securities data can also be included in the comprehensive digital database. Credit information is available with Central Repository of Information on Large Credit (CRILC). Other information like shareholding pattern, list of directors is available with MCA," it added.

"A robust credit data infrastructure will allow banks to better analyse the financial data by way of triangulation of information and also provide greater industry insights. While for larger corporates this would enhance banks' ability to access credit worthiness, it would also lower costs and potentially ease the flow of credit to micro-small and medium enterprise (MSME) segment," Shikha Sharma, Managing Director and CEO, Axis Bank, said.

Creating suitable and comprehensive digital data infrastructure will provide banks the ability to identify fraud, data manipulation and stress early while helping corporates get access to cheaper credit, Arun Tiwari, Chairman and Managing Director, Union Bank of India, said.

"Such a system is used in some other countries and can greatly facilitate financial institutions to avoid undue risk in disbursing loans in the wake of demonetisation," CII said.

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