Rise of digital lending has not rendered conventional credit channels obsolete but complemented them says RBI Deputy Governor

M. Rajeshwar Rao, Deputy Governor, Reserve Bank of India noted in a speech that the financial sector has undergone a profound transformation in the digital era, reshaping how individuals and businesses access and utilize financial services. The shift from cash-driven, paper-based transactions to a seamless, technology-driven ecosystem has been one of the most defining changes in modern finance. India has exemplified creative disruption in finance through innovations like Unified Payment Interface (UPI), Account Aggregator (AA) framework, and the recently launched Unified Lending Interface (ULI).

This has complemented the other components of what is collectively known as the "India Stack". In the context of the creative disruption referred to earlier, these initiatives have not just supplemented the traditional banking system but have strengthened it by making transactions more seamless, expanding financial reach, and improving efficiency. Similarly, the rise of digital lending has not rendered conventional credit channels obsolete but has complemented them, bringing underserved segments into the formal financial fold.

He opined that traditional credit evaluation relies heavily on structured financial data, such as credit history and income statements. However, AI-driven models enable analysis of vast amounts of alternative data-including transaction patterns, utility bill payments, e-commerce behaviour etc. to assess a borrower's creditworthiness more holistically.

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