Public Credit Registry (PCR) and Goods and Services Tax Network (GSTN): Giant Strides to Democratise and Formalise Credit in India (Dr. Viral V. Acharya, Deputy Governor, Reserve Bank of India, August 20, 2018 – at the Annual Global Banking Conference – FIBAC 2018 organised by Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks’ Association (IBA), Mumbai) – News and Press Release – Dated:- 21-8-2018 – It is a pleasure to be with you all and share with you my thoughts on some recent developments that are expected to have transformative implications for our country. In particular, I wish to draw your attention to some major initiatives in gathering and analysing better credit data that can potentially have a huge impact in creating a financially healthy India. It is a known fact that a large part of the Indian economy is informal. This year s Economic Survey has given us an estimate, sourced in large part from the implementation of the Goods and Services Tax N
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other words, there is financial under-penetration in India. It is in this context that that I will share with you two giant strides being undertaken that will help India move towards more equitable and timely access to credit, especially to the underserved. While these strides are being undertaken independently, together they can democratise and formalise credit in India. Public Credit Registry (PCR) for India The first stride is the creation of a Public Credit Registry, or PCR in short. Last year in my speech5 at the Annual Statistics Day Conference in RBI, I focused on setting up a PCR in India. Till that time, the concept of PCR was not much discussed in our country, though a large number of countries had already established or were in the process of establishing PCRs. Today I am happy to quickly recount with you the progress that we have made in this direction thus far. The constitution of a High Level Task Force (HTF), under the chairmanship of Shri Y.M. Deosthalee, and consistin
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-borrower accounts without a size threshold. As of today, information on borrowings from banks, non-banking financial companies (NBFCs), corporate bonds or debentures from the market, external commercial borrowings (ECBs), foreign currency convertible bonds (FCCBs), Masala bonds, and inter-corporate borrowings are not available in a single data repository. The main objective of the PCR is to fill this lacuna and capture all the relevant information about a borrower, across different borrowing products, in one place. Moreover, significant parts of this registry of borrowing contracts and repayment history will be accessible to all stakeholders provided they too share their data with the PCR. The HTF submitted its report6 on April 04, 2018 recommending that a PCR should be setup by the RBI in a phased and modular manner. The report of the task force has been placed in the public domain after the top management of the RBI discussed it and had it reviewed by its Legal Department. An Implem
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ral bank could not precisely assemble data on the quality of the credit portfolio of banks large borrowers at an aggregate level. The data are simply not being reported with integrity and full coverage in case of large corporate borrowers. That is where RBI s Central Repository of Information on Large Credits (CRILC), initiated in 2014, made a huge difference, even if it was somewhat late to be set up. CRILC provides a timely window on any degradation of credit of a large borrower at a bank to the central bank and to other banks having the same entity as a borrower. The Asset Quality Review (AQR) that followed in 2015 relied heavily on CRILC data to cleanse the Augean stables of massive and unrecognised non-performing assets (NPAs) that have saddled our banks. The credit information system, as a whole, has many such gaps which leave much scope for improvement. In my speech in July last year, I had also provided another example of how research based on data from credit registries can in
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in a similar level of sophistication to its economic research through careful access to near-real-time and comprehensive credit data that a PCR would capture. World Bank s Doing Business 20188 reports the coverage of the adult population by institutions gathering credit data in select countries, grouped by the existence of only Public Credit Registry (PCR), only Private Credit Bureaus (PCBs), and both PCR & PCBs (Table 1). It is to be noted that some countries have opted to have a PCR only for supervisory purposes, where they cover large credits only. It is also documented that the coverage of adult population by PCR and PCBs varies widely depending on the objectives set by the regulators as well as the prevailing socio-economic condition in these countries. Table 1: Number of countries with Public Credit Registry (PCR) and / or Private Credit Bureaus (PCB) Neither PCR nor PCB Only PCR Only PCB Both PCR and PCB 24 52 70 44 Source: World Bank s Doing Business Report: 2018 At a broa
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tries to provide an authentication service atop these identity services. These identities can be used in a PCR to aggregate data about borrowers from across multiple institutions with a high degree of confidence in the accuracy of merging and referencing of data. Further, the PCR will be a single source of information that has veracity. It will make reporting for small financial institutions easier and also remove the inconsistencies that come from aggregation across different reporting formats of multiple financial institutions. With a repository of such trusted data available, banks and other lenders will be able to take better credit decisions. It can help them recognize early warning signs of asset quality problems by being able to see performance on other credits. The principle of reciprocity is baked into a PCR. While the lending institutions will be mandated by law to share borrower information, most do it willingly, because, in turn, they want to see similar data from other len
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n: The PCR is initially being set up within the existing RBI infrastructure. The Reserve Bank, being a statutory corporation, can do only those activities which are permitted by the Reserve Bank of India Act, 1934 or other legislations. In addition to its core central banking functions, the Reserve Bank also performs certain promotional functions. However, this promotional activity is limited to financial institution only10. Since no financing activity is contemplated for the proposed PCR, it might be difficult to label PCR as a financial institution . This takes it out of the purview of a promotion under the Reserve Bank of India Act, 1934. Another option is to promote an organization for a matter incidental to the functions of the Reserve Bank11 – as part of the Reserve Bank of India Act, 1934 or Banking Regulation Act, 1949 or any other enactment. Collection of information, including credit information, from its regulated entities is an important aspect of the regulatory and supervi
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get information from different sources, the inability of the sources to share such information can be a constraint. To this end, the PCR will have a consent-based architecture. The notice and choice framework to secure an individual s consent is fundamental to data processing practices in a digital economy. It is based on the act of an individual providing consent for certain actions pertaining to his/ her data. It is essential that users provide consent to an entity sharing data (the data provider) before they share data with an entity requesting access (the data consumer). The consent based architecture of the PCR will strengthen privacy of data subjects by ensuring that the data is accessible only to the data consumer, only for stipulated period of time and only for a stipulated purpose, as consented to by the user. 3. PCR Act: Having regard to the complexities discussed above, it is desirable to have a special comprehensive legislation, overriding the prohibitions contained in all
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it information reported by regulated entities with linkage to other information sources and deliver the full potential of information to the stakeholders. For example, through the CIN it may connect to the company s financial statements. It should make alternate data, like utility bill payments records, available for credit decisions. This can significantly help to foster financial inclusion and democratise credit by allowing lending decisions to be based on all cash-flow activity of a borrower, even when physical asset creation has not yet taken place. Goods and Services Tax Network Let me now turn to a seemingly unrelated second stride being undertaken that can help directly address the information asymmetry problem in the credit market. It is one that most of you already know. So I don t want to spend time explaining it, but instead focus on how it can move in lock-step with the PCR in completing a rich journey for formalising credit in India. I am talking, of course, about the Good
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ould secure input tax credits on these purchases. The Input Tax Credit motivation is a strong push towards digitisation and formalisation of small businesses. Moreover, the acceptance of invoices by the buyers creates a trusted repository of invoices. We know they aren t just cooking their books; they have verified buyers at the other end who vouch for the invoice generated. This gives one a potentially penetrative view into the otherwise invisible 10 million businesses that are now on GSTN, uploading roughly 1 billion plus invoices every month13. Source: https://www.gstn.org/ecosystem/ The GST ecosystem has a layer between the tax payer and the GST system (Chart 3). The GST Suvidha Providers (GSPs) are envisaged to provide innovative and convenient methods to taxpayers and other stakeholders in interacting with the GST systems. There will be two sets of interactions, one between the App user and GSP and the second between the GSP and the GST System. The GSP can help the taxpayers in G
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een designed as digital infrastructure, being able to support multiple use cases atop them, without being partial or overly prescriptive on any one use case. This is not happening in a vacuum. Much of this would not be possible if the other roadblocks to going digital weren t already solved. Other public digital infrastructure such as eKYC for knowing your customer or Unified Payments Interface (UPI) for digital payments are nudging users towards creating larger data footprints, and helping them indirectly improve their creditworthiness. With this infrastructure in place, we expect the costs for on-boarding those users who are currently excluded by formal credit to nosedive. It will become feasible to serve a large number of customers, operating at a much lower average transaction size. Just like in the Fast-moving Consumer Goods (FMCG) sector, banking and access to credit too will be sachetized to make it more accessible and affordable for the masses. We want that even a small tea sho
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Indian Banks Association (IBA) on August 20, 2018 at Mumbai. A Theme Talk was also delivered on the subject at the 12th Annual Statistics Day Conference organised by the Reserve Bank of India at Mumbai on July 23, 2018. 2 Economic Survey 2017-18, Vol 1. 3 Ibid. 4 Data from https://stats.bis.org/statx/srs/table/j?m=A 5 A Case for Public Credit Registry in India – https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1042 6 https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=44133 7 https://www.bis.org/ifc/publ/ifcb41k.pdf 8 http://www.doingbusiness.org/data/exploreeconomies/ 9 The national credit bureau: A key enabler of financial infrastructure and lending in developing economies , McKinsey Working Papers on Risk, No. 14. 10 See: Section 17(8-AA) of the Reserve Bank of India Act, 1934. 11 See: Section 17(16) of the Reserve Bank of India Act, 1934. 12 ibid 13 Estimates available at: https://economictimes.indiatimes.com/news/economy/policy/3-5-billion-invoices-every-month-all-a
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