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How fintech can bridge the credit gap for first-time borrowers

Customers have traditionally received loans from NFBCs based on their credit scores. Conventional lenders use an applicant’s credit score to evaluate or underwrite the trustworthiness of a person. To determine a debtor’s ability to repay debt, lenders consider several factors, such as; loan duration, debt levels, wage, financial history, and payback ratio.


However, because of the lack of standard data, many prospective borrowers with the ability to repay a financed loan are turned down by traditional credit-issuing systems.

Conventional lenders use a human screening process to determine creditworthiness. This results in banks taking days or weeks to notify potential clients of the results. The problem is in the system’s foundation, which produces a loop. To borrow a loan, you’ll need appropriate documentation and a decent credit score. But, you’ll need to borrow a loan to improve your credit score.

As a result, if you lack the required documentation and a decent credit score, to begin with, you may never be able to obtain a loan. So, how do people who are new to credit deal with this issue? FinTech, or financial technology, is the quick answer.


According to the Boston Consulting Group, over 1,000 FinTech start-ups have emerged in India in the last seven years. Gross investment in Indian FinTech lending enterprises increased by 25.49 percent between 2015 and 2019. In 2019, documented loans to tech start-ups totaled $322 million, or 3.18 times the industry’s median quarterly investment of $101 million.

Conventional lenders just reject their credit applications due to a lack of data to assess their creditworthiness. FinTech companies, on the other hand, use a distinct credit scoring system to assess a potential customer’s digital footprint in order to determine creditworthiness. This could contain data from the utilities, telecommunications, banking, and residential and commercial sectors.

Daily News

RBI allows banks to amortize additional liability post family pension revision

The Reserve Bank of India on Monday allowed banks to amortize the additional liability arising from the family pension amendment over a five-year period commencing in 2021-22.

The banks have to provide appropriate disclosures of the accounting policy used in the financial statements Notes to Accounts.

Family pension revision

The modification comes after the Indian Banks’ Association (IBA) expressed concern over tunability to absorb liability. IBA states, some banks would struggle to absorb huge sums of liability, of family pension revisions in a single year.

The 11th Bipartite Settlement and Joint Note of November 11, 2020, has a revision in the family pension of bank employees.

The RBI confirms the assessment of all the issues from a regulatory standpoint. Moreover, as an exceptional circumstance, banks covered by the aforementioned settlement may take the following action in the matter.

In case of partial charge on the expenditure to the Profit and Loss Account during the financial year 2021-22. The expenditure must get amortized over a period not exceeding five years; beginning with the financial year ending March 31, 2022. Moreover, it will be subject to a minimum of 1/5th of the total amount involved in the expansion every year.

RBI also said the liability for family pension enhancement must receive full recognition in accordance with the accounting principles.

Overseas Capital Funds

As per a new circular RBI states that several banks approached RBI to clarify the maximum limit on raised overseas capital funds.

overseas capital funds

RBI confirms the investigation of the problems and clarifies the ‘eligible amount’ for the purpose of issuing Perpetual Debt Instruments (PDI) in foreign currency. It is the higher of 1.5 percent of Risk-Weighted Assets (RWAs) and Total Additional Tier 1 capital as of March 31 of the previous financial year.

The RBI also prohibits the issuance of more than 49% of the “eligible amount” in foreign currency; and/or in rupee-denominated bonds outside of India.

Daily News

What is a top-up loan and when should you go for it?

A top-up loan, along with a personal loan, a credit card, and other loan options, is an excellent way to obtain emergency cash. However, experts advise that at first, you must understand what a top-up loan is. And, when should you go for it?

Banks, housing finance firms, and other financial institutions offer top-up loans; which allow borrowers to borrow a specific amount of money in addition to their home loans. As a result, they are financing choices for borrowers who already have a loan with the lender, such as a home loan. Borrowers are normally only eligible for a top-up loan in this situation if they have been paying their EMIs on time and without default for at least a year.

“A borrower’s track record of repayments is one of the primary determining elements for the eligibility for top-up loans,” says Gaurav Jalan, CEO, and Founder of mpocket. This type of loan normally comes with the same terms and conditions as the original.”

In the event of an emergency, most people will either take out a personal loan. Or they will liquidate assets such as gold and property to get money. Experts believe that in some cases, a top-up loan on an existing house loan is a preferable option. Since top-up loans are readily available and come with a low interest rate.

Why top-up loan is right for you?

The most significant advantage of a top-up loan is that the borrower only has to complete minimal documents. Simply put, their existing loan EMIs will increase in proportion to the increased borrowing. It eliminates the need for the borrower to apply for a new loan; because it is approved based on the borrower’s existing loan with the lender. This streamlines the procedure and speeds up disbursement. As a result, this loan is a considerable choice for immediate funding.

Top Up Loan

“This makes it a perfect option in case of an urgent need for money,” Jalan explains. These loans are available for similar use as the original loan, but with fewer restrictions”. A home loan, for example, can only be used for that specific purpose. However, because a top-up loan is tied to an existing home loan, the borrower is not obligated to use the money for refurbishment or house repair. So this kind of loan is a good choice to borrow funds for house repairs or furnishing; as well as larger needs like business expansion, kid education, medical emergencies, and weddings. In summary, top-up loans have no restriction for their use.

“These loans are a perfect alternative in case of unanticipated occurrences or whenever one requires a personal loan, a loan against their property, or even gold,” Jalan continues. It’s a more convenient and hassle-free option in such situations.