Till a couple of months ago a customer could open a savings account with a bank in less than 3 minutes from anywhere which earlier took at least a week and multiple visits to a bank branch. Similarly getting quick loans through apps seemed seamless. However, instant account opening and instant loans hit a roadblock in 2018 which has a direct impact on the consumers.
Regressing from Digital India
After the Supreme Court barred private entities to use eKYC, all online account opening processes have come to a sudden halt pushing financial institution back by 7-8 years to the analogue rigmarole of time-consuming processes.
For banks and other institutions, this means a significant increase in costs. The increase in cost in all likelihood will be eventually passed on to the customers in the form of higher fees. The unfortunate part is that the Supreme Court recognized Aadhaar as a valid document and their concern primarily was the mandatory linkage of Aadhaar to bank accounts and telecom operators. It may not have been intended to block Aadhaar completely to cause inconvenience for customers, who are willing to use it on an optional basis with their full consent.
One possible solution through a law by Parliament is to provide the consumer with a choice between a digital Aadhaar-based and a paper-based process for all financial products. Another alternative can be the creation of a central KYC system—which exists for mutual funds already— through which any organization can verify the identity of a customer. Lastly, a video-based KYC process can be considered where a customer can submit her video with the KYC document.
The NBFC liquidity crunch
Another development that has caused anxiety is the liquidity crunch faced by non-banking financial institutions (NBFC) for the past couple of months. With liquidity drying up, loan disbursals by NBFCS have gone down significantly which directly impacts instant loans on apps and websites as well. Borrowers are either not getting loans or paying higher interest rate. The crisis began with a few NBFCs facing liquidity crunch which led to concerns regarding the quality of their books. Due to the queasiness about NBFC portfolios in general, mutual fund companies and banks turned conservative. One of the biggest segments impacted by this is MSME which comprises entrepreneurs that run small and medium scale businesses and largely depend on NBFCs for their capital needs. Also, high-ticket size loans such as home loans disbursals by NBFCs slowed down drastically. The big worry is that if these NBFCs, especially any of the larger ones, are not able to pay back their outstanding dues the crisis will only aggravate from here. If the lending system is still infused in this crunch for the next couple of months, consumers may find it increasingly difficult to get loan from NBFCs. Many smaller lenders may completely disappear from the market.
The government and the regulator are watching the situation closely and can help drive more liquidity into the system. While there are efforts being made in the direction, the timing and quantum of liquidity easing will be crucial to bring back the lending growth momentum, as well as increase supply and improve pricing for consumers. In case of eKYC we will have to wait and watch.
Naveen Kukreja is chief executive officer and co-founder of Paisabazaar.com