Operational costs of banks expected to come down

Lenders and ecosystem players are upbeat about inclusion of the Goods and Services Tax Network (GSTN) to the account aggregator (AA) framework.

This will not only increase the flow of funds to micro, small and medium enterprises (MSMES) but also reduce the operational cost of these lenders and make the entire process seamless.

GSTN is expected to go live on the AA network in the latter half of January or early February, people aware of the development said.

In a circular, the Reserve Bank of India (RBI) last month announced that GSTN has been included in the network as a financial information provider (FIP). This will facilitate cash flow lending to MSMES. Sahamati, an industry alliance for the AA ecosystem, was in discussion with the GSTN on onboarding for a long time. This would give financial institutions access to data regarding small businesses, which would help them to extend such loans.

“It reduces the cost of operations dramatically. Generally, we ask for stock statements every month. While that may continue, if you have an ongoing look and feel what is happening…that becomes almost like a health monitor. It can minimise the errors we generally make,” said a senior private sector banker. “We use GST data already but in a fragmented manner. The framework gives the entire data on a common platform, and hence, we don’t have to go to five different entities. All of us are figuring out ways to expand lending to MSMES but a big challenge is that information is limited. So, more data about them could increase the business dramatically, he said.

According to experts, with GSTN being added in AA network, banks and other lending institutions would be able to assess the credit worthiness of small business owners through verifiable data.

This will bring these small businesses under the ambit of institutional credit and build their credit history. This, in turn, will help them grow their business through larger loans from financial institutions, they said. “It’s wonderful that GSTN will become a part of the network. We do have access to GST data now on a consent basis. Now, the ability to consume the GSTN data along with other data points will become much easier for banks. We will be able to consolidate the various data points of a borrower and back it with GSTN data to get a complete profile. So, it becomes a seamless process at the banks’ end. I think it can be a real game changer for the ecosystem,” said a senior public sector banker. AK Choudhary, managing director, State Bank of India, said, “It will be one more channel of providing credit to MSMES. This will enhance flow of funding to MSMES. However, helping to significantly expand the SME loan portfolio will be a gradual process.”

According to RBI, the department of revenue will be the regulator of GSTN for its inclusion in the AA network and GST returns, viz. Form GSTR-1 and Form GSTR3B, will be the financial information that will be made available.