Hello everyone, 

Welcome to the 46th edition of The Pattern, a weekly newsletter covering and dissecting all the rumblings in finance, technology, and the economy. This week was about the budget announcements and punditry around their impact (or the lack thereof) on various sectors. 

Let’s start there and see what financial services and FinTech can make of it.

Unlocking the (Digi)Lockers

When it comes to compliments, the biggest ones came for the FinTech industry and its impact in digitizing the financial services space and deepening financial inclusion, in the budget speech delivered by Finance Minister Nirmala Sitharaman. While lauding the growth of UPI, AA, as well as other infrastructure such as India Stack, the FM made sure to announce certain initiatives to give a further boost to the sector with a view of deepening credit access for end borrowers and MSMEs. 

The biggest announcements that pertain to the sector include expanding the scope of DigiLocker for entities - such as corporations, MSMEs, cooperatives, and other industry bodies for them to easily fetch digital documents through their official issuers and share them seamlessly with other entities such as lenders and financial institutions. 

This is an interesting development. DigiLocker has been rolled out to citizens of the country with free-of-cost onboarding. Through the app, individuals can access official digital documents such as Aadhaar cards, Voter ID cards, vehicle registration, and more. 

More than 14.6 crore individuals have been onboarded so far, and more than 5.6 billion documents have been issued through DigiLocker so far. As of now, there are more than 2311 issuers live on the platform. 

For businesses big and small, this can be a game changer. How? 

1. DigiLocker will ease the digitalisation of documentation - by aggregating originals relating to a business entity in a single source of truth; the technology might end up transforming the MSME space from data-poor to data-rich . 

2. Easier access to credit - One of the biggest challenges for small-ticket credit at scale is the need for digital documentation, making it expensive, error-prone, and resource-heavy for lenders to fund small businesses repeatedly. If access to such documents through DigiLocker is opened up a la Account Aggregator framework - the lenders might start queuing up to lend to even the smallest borrowers. 

3. Reduced cost of credit - At FinBox, one of the core principles has been to reduce the cost of analytics for lenders by improving digitisation and building cutting-edge technology workflows that are more accurate and reduce the overall cost of the assessment . DigiLocker can help speed up that process much more through its seamless transition from a document storage locker to a data source that can be used to build analytics and models on top by technology-savvy FinTechs and lenders. 

At the same time, the government’s move to make the business PAN a unique identifier for businesses across the country means that it’ll be much easier for financial institutions to now query data across databases and might reduce some of the compliance burden with probable impact across KYC and onboarding as well. Our CEO Rajat wrote an insightful piece analysing the state of KYC that I highly recommend you read for more context.

Greenshoots in a thorny environment 

When it comes to the overall macroeconomic environment, things aren’t the best. First, there’s the tanking stock market with increased volatility ever since allegations of fraud came upon the Adani Group. Additionally, the unemployment rate shows no signs of abating in the near future and the Economic Survey released last week pointed out that lending rates might remain high in the near-future given the excess liquidity in the system and ensuing inflation. However, there’s some stuff to cheer about. 

First, the gross NPAs of the banking sector in their MSME books declined by 5% over the last year to Rs 1.54 lakh crore. This is the lowest number of GNPAs reported by scheduled commercial banks in the last five years - signaling the relative recovery of the health of lending books at banks for the eternally credit-starved sector. 

Second, the First Loss Default Guarantee uncertainty might end soon. The RBI is engaging with the FinTech industry regarding the contentious FLDG model where lenders often team up with FinTechs and other regulated entities to cover first losses in their lending portfolio as part of new digital lending programs. However, earlier, the RBI guidelines seemed to stop such arrangements, and the regulator is taking its own sweet time to evaluate the contours before it comes out with a set of clear guidelines on the same. Fingers crossed. 

Third, the deepening credit access efforts seem to be showing results. Uttar Pradesh, one of the most underserved states, is showing signs of healthy credit growth , according to a CIBIL report. The credit bureau reports that the originations in the state are steadily increasing and 26% of all the new retail credit has gone towards new-to-credit borrowers . This is both exciting and encouraging as it is only through bridging the India and Bharat divide can we achieve the dream of equitable financial services access. 

Between the digits 

17%: According to the RBI, under the government's credit guarantee scheme, one in six loan accounts for MSMEs have become NPAs. This came at the heels of the budget when the government announced an infusion of a further Rs 9,000 crore in the revamped credit guarantee scheme. 

377: The latest reading from the RBI’s Digital Payments Index, which tracks the progress of digital payments across infrastructure, acceptance, values, and volumes shows that the measure jumped from 349 in the month of March 2022 to 377 in September 2022.  

51%: Mizoram is one of the most indebted states in the country as the state government debt is set to balloon to more than 50% of the state GDP, according to RBI’s State Finances report . The state is followed by Nagaland, Punjab and Himachal Pradesh which all report the gross debt to be more than 45% of the state GDPs. The least indebted state? Delhi with just 2.2% state debt! 

This is all from me today. As always, leaving some reading recommendations below. 

Reading list

1. India's largest bank SBI has $2.6 billion of loans to Adani Group companies

2. RBI on periodic KYC updation of even existing customers

3. Three steps to win with credit integration on a B2B marketplace

4. What makes FinBox BankConnect 10x faster than other bank statement analyzers

5. What’s keeping Google Pay down in India

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter  here  and follow  FinBox on LinkedIn  to never miss any updates. 

Cheers,

Mayank