Banks should focus more on cash-flow based lending, says RBI Governor

Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said banks must focus more on cash-flow based lending instead of relying on collaterals for their lending decisions. 

"To improve the credit to gross domestic product (GDP) ratio, access to credit and cost of credit need to be addressed by lesser reliance on collateral security and greater cash-flow based lending," the RBI governor said at a webinar on investor education organised by National Council of Applied Economic Research (NCAER). 

In this regard, credit bureaus and the proposed Public Credit Registry (PCR) framework can improve the flow of credit as well as credit culture in the country, according to the governor.  

In order to improve digital financial services the RBI has taken several initiatives, including pilot projects to make at least one district of every state or Union Territory 100 per cent digitally enabled by March 2021. Forty-two such districts are part of this initiative, the governor said.  

To further digital literacy in the country, the RBI has adopted a ‘5 Cs’ approach. The Cs are “Content (including curriculum in schools, colleges and training establishments), capacity of the intermediaries who provide financial services and education; leveraging on the positive effect of community-led model for financial literacy through appropriate communication strategy; and enhancing collaboration among various stakeholders,” the governor said in his keynote address. 

 

Financial inclusion has seen a huge improvement with government and RBI initiatives, and is “poised to grow exponentially with digital savvy millennials joining the workforce, social media blurring the urban-rural divide and technology shaping the policy interventions,” he said.

The RBI governor said in the coming days, there should be near universal reach of bank accounts across the length and breadth of the country, besides, there should be greater focus on penetration of sustainable credit, investment, insurance and pension products by addressing demand side constraints with enhanced customer protection. 

However, “in a large country like ours with an aspiring population, financial education cannot remain just the responsibility of financial sector regulators," he said. 

Therefore, educational institutions, industry bodies and other stakeholders like think tanks, research institutions should come forward to shoulder the responsibility of increasing financial literacy through appropriate awareness campaigns, Das said.