RBI Official Emphasizes Importance of Responsible Lending and Borrowing
3 Sources
3 Sources
[1]
Responsible lending is as important as responsible borrowing: RBI official
A senior Reserve Bank of India (RBI) official urged banks to be responsible lenders while commenting on the significance of building consumer trust and protection in digital lending using artificial intelligence and machine learning (AI/ML) models. "Responsible lending is as important as responsible borrowing," said chief general manager of the RBI, Vaibhav Chaturvedi "Customer trust and financial literacy cannot be solved overnight and is tricky, but there is urgency, with how digital lending is picking up", said Vaibhav Chaturvedi, CGM, RBI, said speaking at Global Fintech Fest in Mumbai. His comments are made amidst increased reliance on AI by banks, finance companies and fintech to assess a borrower's creditworthiness and repayment capabilities. The RBI CGM said that right now the central bank is leveraging AI models with a board based approach focusing on governance in the risk management guidelines, which is used to prevent negative experience for customers. The size of digital lending is expected to be over $1 Trillion by 2030, according to a BCG report, and most of the loans will be disbursed using AI. "We use AI for multiple use cases, especially in the collection phase, where the algorithm classifies a person according to their borrower behaviour. About 15% of our borrowers are classified in the low, medium, high-risk category, where we can intervene and take the process forward", said Harshvardhan Lunia, CEO, Lendingkart. Responsible borrowers are important, especially when the nation is young, and regional languages play an important role when it comes to pushing financial literacy contents, said Lunia. Even the RBI governor Shaktikanta Das on Wednesday said that AI/ML are poised to revolutionise financial services in unprecedented ways. "AI algorithms are already being deployed for fraud detection. Machine learning models are increasingly being employed in credit scoring, leveraging predictive analytics to assess creditworthiness, and expand access to credit," Das had said. "As AI and ML capabilities continue to evolve, their potential applications in regulatory compliance, investment advisory services, and algorithmic trading are expected to further redefine the financial landscape," he said.
[2]
Use AI/ML tools for responsible lending: RBI
A senior RBI official emphasised the need for responsible lending to build consumer trust and protection in digital lending using AI/ML models. With AI's growing role in credit assessment, banks need to focus on governance and financial literacy. Digital lending is expected to surpass $1 trillion by 2030.A senior Reserve Bank of India (RBI) official urged banks to be responsible lenders while commenting on the significance of building consumer trust and protection in digital lending using artificial intelligence and machine learning (AI/ML) models. "Responsible lending is as important as responsible borrowing," said chief general manager of the RBI, Vaibhav Chaturvedi "Customer trust and financial literacy cannot be solved overnight and is tricky, but there is urgency, with how digital lending is picking up", said Vaibhav Chaturvedi, CGM, RBI, said speaking at Global Fintech Fest in Mumbai. His comments are made amidst increased reliance on AI by banks, finance companies and fintech to assess a borrower's creditworthiness and repayment capabilities. The RBI CGM said that right now the central bank is leveraging AI models with a board based approach focusing on governance in the risk management guidelines, which is used to prevent negative experience for customers. The size of digital lending is expected to be over $1 Trillion by 2030, according to a BCG report, and most of the loans will be disbursed using AI. "We use AI for multiple use cases, especially in the collection phase, where the algorithm classifies a person according to their borrower behaviour. About 15% of our borrowers are classified in the low, medium, high-risk category, where we can intervene and take the process forward", said Harshvardhan Lunia, CEO, Lendingkart. Responsible borrowers are important, especially when the nation is young, and regional languages play an important role when it comes to pushing financial literacy contents, said Lunia. Even the RBI governor Shaktikanta Das on Wednesday said that AI/ML are poised to revolutionise financial services in unprecedented ways. "AI algorithms are already being deployed for fraud detection. Machine learning models are increasingly being employed in credit scoring, leveraging predictive analytics to assess creditworthiness, and expand access to credit," Das had said. "As AI and ML capabilities continue to evolve, their potential applications in regulatory compliance, investment advisory services, and algorithmic trading are expected to further redefine the financial landscape," he said.
[3]
Responsible lending is as important as responsible borrowing: RBI official
A senior Reserve Bank of India (RBI) official urged banks to be responsible lenders while commenting on the significance of building consumer trust and protection in digital lending using artificial intelligence and machine learning (AI/ML) models. "Responsible lending is as important as responsible borrowing," said chief general manager of the RBI, Vaibhav Chaturvedi "Customer trust and financial literacy cannot be solved overnight and is tricky, but there is urgency, with how digital lending is picking up", said Vaibhav Chaturvedi, CGM, RBI, said speaking at Global Fintech Fest in Mumbai. His comments are made amidst increased reliance on AI by banks, finance companies and fintech to assess a borrower's creditworthiness and repayment capabilities. The RBI CGM said that right now the central bank is leveraging AI models with a board based approach focusing on governance in the risk management guidelines, which is used to prevent negative experience for customers. The size of digital lending is expected to be over $1 Trillion by 2030, according to a BCG report, and most of the loans will be disbursed using AI. "We use AI for multiple use cases, especially in the collection phase, where the algorithm classifies a person according to their borrower behaviour. About 15% of our borrowers are classified in the low, medium, high-risk category, where we can intervene and take the process forward", said Harshvardhan Lunia, CEO, Lendingkart. Responsible borrowers are important, especially when the nation is young, and regional languages play an important role when it comes to pushing financial literacy contents, said Lunia. Even the RBI governor Shaktikanta Das on Wednesday said that AI/ML are poised to revolutionise financial services in unprecedented ways. "AI algorithms are already being deployed for fraud detection. Machine learning models are increasingly being employed in credit scoring, leveraging predictive analytics to assess creditworthiness, and expand access to credit," Das had said. "As AI and ML capabilities continue to evolve, their potential applications in regulatory compliance, investment advisory services, and algorithmic trading are expected to further redefine the financial landscape," he said.
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Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao highlights the critical role of responsible lending practices in maintaining financial stability and promoting sustainable economic growth.
RBI's Stance on Responsible Lending
Reserve Bank of India (RBI) Deputy Governor M Rajeshwar Rao has emphasized the crucial importance of responsible lending practices in the financial sector. Speaking at an event organized by Sa-Dhan, a self-regulatory organization for microfinance institutions, Rao stressed that responsible lending is equally important as responsible borrowing for maintaining financial stability and fostering sustainable economic growth 1.
The Role of Lenders in Financial Stability
Rao highlighted that lenders play a pivotal role in ensuring the stability of the financial system. He urged financial institutions to prioritize responsible lending practices, which involve thorough assessments of borrowers' repayment capacity and the provision of appropriate financial products. This approach, according to Rao, is essential for preventing over-indebtedness and maintaining the overall health of the financial ecosystem 2.
Microfinance and Financial Inclusion
The RBI Deputy Governor also addressed the significance of microfinance in promoting financial inclusion. He noted that while microfinance has been instrumental in extending financial services to underserved segments of society, it is crucial for microfinance institutions to adhere to responsible lending practices. This ensures that the benefits of financial inclusion are realized without compromising the financial stability of borrowers or the institutions themselves 3.
Regulatory Framework and Guidelines
Rao outlined the RBI's commitment to maintaining a robust regulatory framework that promotes responsible lending. He mentioned various guidelines and regulations implemented by the central bank to ensure that financial institutions follow prudent lending practices. These measures aim to strike a balance between facilitating credit flow and safeguarding the interests of borrowers and the overall financial system 1.
Technology and Responsible Lending
The Deputy Governor also touched upon the role of technology in enhancing responsible lending practices. He emphasized that financial institutions should leverage technological advancements to improve their credit assessment processes, monitor borrower behavior, and detect early signs of financial stress. This proactive approach can help in preventing defaults and ensuring the long-term sustainability of lending activities 2.
Future Outlook and Challenges
Looking ahead, Rao acknowledged the challenges faced by the financial sector in implementing responsible lending practices consistently. He called for continued collaboration between regulators, financial institutions, and industry associations to develop and refine best practices in lending. The RBI, he assured, would continue to play a proactive role in guiding the sector towards more responsible and sustainable lending practices 3.
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