GS Paper 3
Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Context:
The account aggregator system in banking has kicked off with eight of India’s largest banks, including HDFC Bank, ICICI Bank and Axis Bank.
- When fully functional, the system can make lending and wealth management a lot faster and cheaper.
What are account aggregators?
An Account Aggregator is a non-banking financial company engaged in the business of providing, under a contract, the service of retrieving or collecting financial information pertaining to its customer.
- It is also engaged in consolidating, organising and presenting such information to the customer or any other financial information user as may be specified by the bank.
How does an AA work?
It has a three-tier structure: Account Aggregator, FIP (Financial Information Provider) and FIU (Financial Information User).
- An FIP is the data fiduciary, which holds customers’ data. It can be a bank, NBFC, mutual fund, insurance repository or pension fund repository.
- An FIU consumes the data from an FIP to provide various services to the consumer. An FIU is a lending bank that wants access to the borrower’s data to determine if the borrower qualifies for a loan.
Banks play a dual role – as an FIP and as an FIU.
Benefits:
- The new system makes it possible for banks, tax authorities, insurers and other finance firms to aggregate data of customers — who have provided their consent — to get a better understanding about their potential customers, make informed decisions and ensure smoother transactions.
- This will also enable customers to easily access and share their financial data. It allows customers to avail various financial services from a host of providers on a single portal based on a consent method.
- It reduces the need for individuals to wait in long bank queues, use Internet banking portals, share their passwords, or seek out physical notarisation to access and share their financial documents.
- This will help banks reduce transaction costs, which will enable us to offer lower ticket size loans and more tailored products and services to our customers.
The AA framework:
The AA framework was created through an inter-regulatory decision by RBI and other regulators including Securities and Exchange Board of India, Insurance Regulatory and Development Authority, and Pension Fund Regulatory and Development Authority (PFRDA) through an initiative of the Financial Stability and Development Council (FSDC).
- The licence for AAs is issued by the RBI, and the financial sector will have many AAs.
Insta Curious:
Is it necessary that every NBFC should be registered with RBI? Reference:
InstaLinks:
Prelims Link:
- Payment aggregators vs Payment Gateways- functions.
- Capital requirements of NBFCs.
- NBFCs vs SFBs.
Mains Link:
Who are payment aggregators? Why there is a need for regulation of these entities? Discuss.
Sources: Indian Express.
