RBI to Launch Unified Lending Interface: A Game-Changer for India's Credit Landscape

Coming soon: UPI-like platform for lending - Times of India

RBI launched the Unified Lending Interface (ULI) to facilitate frictionless loans based on digital information flow and land records, aiding small businesses and rural borrowers. RBI Governor Shaktikanta Das highlighted ULI's success and potential, aiming for a nationwide launch. He also discussed AI integration and cross-border payment systems at a digital infrastructure conference in Bengaluru.

RBI To Roll Out Unified Lending Interface To Offer Credit To Agricultural & MSME Borrowers

The central bank expects ULI to transform the lending space in India, akin to how the Unified Payments Interface (UPI) revolutionised the payments ecosystem, RBI governor Shaktikanta Das said In an effort to further give impetus to India's digital infrastructure, the Reserve Bank of India will soon launch a platform to offer credit to rural and small businesses. Dubbed 'Unified Lending Interface', the platform will cater to large unmet demand for credit across various sectors, particularly for agricultural and MSME borrowers, RBI's governor Shaktikanta Das said on Monday (August 26). Addressing the RBI@90 global conference on "Digital Public Infrastructure and Emerging Technologies", the central bank chief said that the RBI piloted the ULI infrastructure last year and a pan-India launch will happen in "due course". "Just like Unified Payments Interface (UPI) transformed the payments ecosystem, we expect that ULI will play a similar role in transforming the lending space in India," the RBI governor said. According to Das, the ULI platform facilitates seamless and consent based flow of digital information, including even land records of various states, from multiple data services providers to lenders. Further, it also reduces the time taken for credit appraisal and eliminates the need for extensive documentation. In addition to the ULI infrastructure, the RBI chief also highlighted certain key issues underpinning artificial intelligence and the use of digital public infrastructure (DPI) to address challenges in cross-border payments. "DPI has enabled India to achieve, in less than a decade, levels of financial inclusion that would have otherwise taken several decades or more," Das said.

Nationwide launch of Unified Lending Platform in due course: RBI Governor

The nationwide launch of a technology platform that would enable frictionless credit across sectors, particularly for agricultural and MSME borrowers, will be done in due course, said RBI Governor Shaktikanta Das. This is based on RBI's experience with the pilot of this technology platform, which was launched last year. The central bank plans to call the platform 'Unified Lending Interface' (ULI). "Just like UPI (Unified Payments Interface) has transformed the payments ecosystem, we expect ULI will play a similar role in transforming the lending space in India. "The 'new trinity' of JAM (Jan Dhan, Aadhar, Mobile)-UPI-ULI will be a revolutionary step forward in India's digital infrastructure journey," Das said at the RBI@90 Global Conference on "Digital Public Infrastructure and Emerging Technologies". The Governor said the ULI platform facilitates seamless and consent-based flow of digital information, including land records of various states, from multiple data service providers to lenders. "This cuts down the time taken for credit appraisal, especially for smaller and rural borrowers. The ULI architecture has common and standardised APIs (application programming interfaces), designed for a 'plug and play' approach, to ensure digital access to information from diverse sources. "This reduces the complexity of multiple technical integrations. It enables borrowers to get the benefit of seamless delivery of credit and quicker turnaround times without requiring extensive documentation," he said. Das emphasised that by digitising access to the customer's financial and non-financial data that has otherwise resided in disparate silos, ULI is expected to cater to large unmet demand for credit across sectors, particularly for agricultural and MSME borrowers Also read: CBDC can complement UPI well CBDC The Governor cautioned against any rush to roll out system-wide the Central Bank Digital Currency (CBDC), before one acquires a comprehensive understanding of its impact on users, on monetary policy, on the financial system and on the economy. "Such understanding would emerge from generation of user data in pilots. The CBDC can be phased in gradually. Undoubtedly, it has the potential to underpin the payment systems of the future, both for domestic payments and cross-border payments," he said. CBDC is the legal tender issued by the central bank in a digital form. It is a digital or virtual currency. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Only its form is different. In India, RBI launched CBDC pilots in both retail and wholesale segments in late 2022. "The retail pilot currently has over 5 million users and 16 participating banks. While the pilot started with an initial use case of payments, currently both the offline and programmability functionalities are also being tested. The programmability feature of CBDC could serve as a key enabler for financial inclusion by ensuring delivery of funds to the targeted user," Das said. Referring to a pilot launched by SBI on August 16, 2024, in Odisha and Andhra Pradesh, the Governor said: "Tenant farmers often find it difficult to access agricultural credit for inputs and raw materials as they do not have the land title to submit to the banks. "However, programming the end use for purchase of agricultural inputs can give banks the required comfort and thus establish the identity of a farmer, not through his land holding, but through the end use of funds being disbursed." He also mentioned another use case (involving IndusInd Bank), whereby farmers get purpose-bound money through programmable CBDC for the generation of carbon credits. Other new use cases aimed at testing features such as anonymity and offline availability, are proposed to be rolled out gradually. AI and DPI Das observed that integration of Artificial Intelligence (AI) into financial services, including through chatbots, internal data processing for intelligent alerts, fraud risk management, credit modelling and other processes, brings significant opportunities for all stakeholders. "For customers, AI enables hyperpersonalised products and faster, more relevant services. Financial institutions like lenders benefit from advanced tools for risk and fraud management, streamlined operations, and reduced compliance costs. "Regulators gain enhanced oversight and real-time monitoring capabilities, which would improve regulatory enforcement and market stability," he said, adding such advancements come with serious challenges. He cautioned that data privacy concerns arise from handling vast volumes of personal information. Ethical AI governance is essential to ensure fairness and prevention of bias. "Financial institutions must ensure that AI models are explainable, i.e., the ability to explain why certain results are produced. AI technology can also be misused to spread misinformation, potentially causing severe damage and disruption to DPIs (Digital Public Infrastructure) as well as other digital systems. They can also damage the reputation and operations of financial institutions," Das said. When it comes to regulated financial institutions, he underscored careful adoption of AI in critical decision-making segments, for example in loan sanctioning. While AI can definitely assist the process, the institutions using them should have a proper understanding of the models and ensure accountability of the outcomes. SHARE Copy linkEmailFacebookTwitterTelegramLinkedInWhatsAppRedditPublished on August 26, 2024

Unified Lending Interface, new CBDC pilot: Upcoming RBI offerings

Reserve Bank of India (RBI) Governor Shaktikanta Das shared the RBI's latest addition to Digital Public Infrastructure: Unified Lending Interface (ULI), in his inaugural address at the 'Global Conference on DPI and Emerging Technologies'. Das said, " Just like UPI transformed the payments ecosystem, we expect that ULI will play a similar role in transforming the lending ecosystem in India." He explained that the platform would facilitate credit for those that are often denied credit due to lack of documentation. The RBI will soon introduce Unified Lending Interface, a technology platform for enabling credit. Previously, the 'Jan Dhan, Aadhaar, Mobile' or 'JAM' Trinity provided the base for India's DPI infrastructure. The Governor stated that the RBI will now be introducing the new Trinity- JAM, UPI and ULI. Unified Lending Interface will allow users to transfer digital information. The Governor provided a use case of transferring land records of various states, from multiple data service providers to lenders. He said that the ULI's architecture will have common and standardized APIs designed for a plug and play approach so that lenders will have access to information from diverse sources. He said that the system is based on the consent of the potential borrowers to protect their data privacy. The ULI aims to cut down on the time taken for credit appraisal, especially for smaller and rural borrowers and digitize access to customers' financial and non financial data. The Governor said that "Unified Lending Interface is expected to cater to large unmatched demand for credit across various sectors, particularly for agricultural and MSME borrowers." The Governor has shared his plans for India's Central Bank Digital Currency (CBDC), e-rupee. The RBI's latest pilots for CBDC aim to increase credit access by overcoming the challenge of assessing creditworthiness with a lack of credit history in various parts of India. In 2022, the RBI launched pilots for CBDC in both retail and wholesale segments. The retail pilot currently has over 5 million users and 16 participating banks, said the Governor. He added, that it was important to emphasise that, "there should not be any rush to roll out system-wide CBDC before one acquires a comprehensive understanding of its impact on users, on monetary policy, on financial system, and on the broader economy. Such understanding would emerge from generation of user data through pilots, and actual introduction of CBDC can be phased in gradually over a period of time." In line with this, he also announced that the RBI is currently testing pilots for CBDC with both offline and programmability functions. The Governor said, , "the programmability feature of CBDC could serve as a key enabler for financial inclusion by ensuring delivery of funds to the targeted user." He illustrated this with an example of RBI's programmable CBDC for tenant farmers. Tenant farmers often struggle to access agricultural credit as they do not have the land title to submit to banks or lending institutions. However, the end use of the CBDC can be programmed to provide inputs or raw materials for agriculture i.e. it can be programmed to provide loans for fertilizer, milch animals or to provide a subsidy. He said, " programming the end use for purpose of agricultural inputs can give the required comfort to banks and thus establish the identity of a farmer not through his land holding, but the end use of funds being dispersed." Other new use cases the RBI plans to introduce are providing farmers purpose bound money through programmable CBDC for generating carbon credits, and anonymous and offline CBDC. Das said, "For customers, AI enables hyper personalized products and faster, more relevant services. Financial institutions, like lenders, benefit from advanced tools for risk and fraud management, streamlined operations and reduced compliance costs. Regulators can also gain enhanced oversight and real time monitoring capabilities, which would improve regulatory enforcement and market stability." However, data privacy concerns arise from handling vast volumes of personal information. Mal actors can also misuse AI to spread misinformation and potentially cause severe damage and disruption to DPIs and other digital systems. They can also damage the reputation and operations of financial institutions, he noted. He said that ethical AI governance is essential to ensure fairness and prevention of bias. For this, financial institutions must ensure that AI models are explainable, that is they must have ability to explain the reasoning for the produced results. "It is important to be proactive to leverage the capabilities of new technologies, but at the same time, it is essential to be abundantly mindful of the associated risks and challenges.", said Das. He highlighted three aspects to consider while using AI: Das said, "Central banks and governments, on their part, should focus on fostering the development of trustworthy AI, keeping data privacy, explainability, accountability and transparency at its core." The Governor also expanded the RBI's plans to make Fast Payment Systems of various countries interoperable. He noted that the implementation of interoperability may be challenging as countries may prefer to design their own systems as per their own domestic considerations. He said India can overcome this technical barriers by using common international technical standards and harmonizing the structure or management framework for long term sustainability among countries. Further, developing a plug and play system which allows replicability while also maintaining the sovereignty of the respective countries can overcome the challenges of interoperability.He stated that India will be willing to develop a plug and play system for the other nations. He added, "The UPI system has indeed the potential to evolve into a cheaper and quicker alternative to the available channels of cross border remittances. A beginning can be made with small value personal remittances as it can be quickly implemented."