Banks should focus more on cash-flow based lending: Shaktikanta Das

NEW DELHI: Banks must lessen reliance on collateral security and instead focus on cash-flow-based lending to improve the credit-to-GDP ratio, said Reserve Bank of India (RBI) Governor Shaktikanta Das. Speaking at a webinar on investor education organised by National Council of Applied Economic Research (NCAER), Das said higher credit to GDP ratio and greater financial inclusion are among the prerequisites for achieving demographic dividend and accelerated growth.

“To improve the credit to GDP ratio, access to credit and cost of credit need to be addressed by lesser reliance on collateral security and greater cash-flow based lending. Credit bureaus and the proposed Public Credit Registry (PCR) framework are expected to improve the flow of credit as well as credit culture,” Das said on Wednesday. According to RBI data, scheduled commercial bank’s credit as per cent of GDP plunged to 50.99 per cent in FY20 from 51.51 a year ago.

Das also underscored that financial inclusion in the country is poised to grow exponentially with a large section of tech savvy millennials joining the workforce, social media blurring the urban-rural divide and technology shaping policy interventions. “Several initiatives have been taken for the creation of enabling digital infrastructure at the ground level. Going forward, harnessing the near universal reach of bank accounts across the length and breadth of the country, there needs to be greater focus on penetration of sustainable credit, investment, insurance and pension products by addressing demand side constraints with enhanced customer protection,” the governor said in his keynote address.

The interventions in financial education would have to be customised (local language) keeping the different target audience in mind, The scaling up of Centre for Financial Literacy project at the block level would also be the cornerstone of community led participatory approaches to achieve greater financial literacy. Das, however, noted that “in a large country like ours with an aspiring population, other stakeholders like think tanks, and research institutions should come forward to shoulder the responsibility of increasing financial literacy.