Fintechs must help public sector banks improve their digital lending capabilities, says DFS Secy Joshi

Posted on by

The Finance Ministry on Wednesday asked fintechs to help the public sector banks (PSBs) in improving their digital lending capabilities to micro, small and medium enterprises (MSMEs).

Addressing the 5th edition of PICUP Fintech Conference, organised by FICCI and Indian Banks Association (IBA), Vivek Joshi, Secretary, Department of Financial Services, highlighted that Budget 2024 had cast new responsibility on PSBs in building their in-house capability to assess MSMEs for credit. It is here that fintechs could play a role in helping these banks develop a new credit assessment model, he noted. 

Finance Minister Nirmala Sitharaman had in her Budget speech announced that PSBs will take a lead in developing or getting developed a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy.

This is expected to be a significant improvement over the traditional assessment of credit eligibility based only on asset or turnover criteria. It will also cover MSMEs without a formal accounting system, Sitharaman had said in her Budget speech.

HAND-IN-HAND APPROACH

Joshi underscored the need for fintechs to work hand-in-hand with the banks. 

“Rather than creating a solution themselves and then approaching the banks and saying here is a solution with me and please adopt in your working, I think the approach of fintechs should be other way round”, he said.

He highlighted that PSBs deal with bigger issues and they work in an ecosystem whereby they themselves face many problems. 

“It would be more appropriate if banks suggest the problem and then solution is provided by the fintech ecosystem. Rather than having a solution and going to the bank to adopt,” Joshi said.

With fintechs not working hand-in-hand with the banks, the former’s information about the kind of challenges banking system is currently facing maybe limited, he noted. 

At the same time, Joshi also expressed some satisfaction that many of the banks have started empanelling start-ups, given them problems and asked for solutions.

INNOVATION vs REGULATORY RESPONSE

Given the large and growing market size, there are huge opportunities for fintech sector in India, Joshi said.

While the potential of fintechs is immense, one must also address the challenges that come with the use of technology. “Digital growth has thrown certain unique challenges such as governance issues, regulatory and statutory compliance issues, consumer protection and fair practices,” he said. 

It is necessary to strike a balance between fintech innovation and timely regulatory response, Joshi said. “Also important is to ensure that innovation does not outpace the necessary safeguards. Cybersecurity, data privacy, identity theft, digital financial frauds and digital literacy are areas that require our attention,” he added.