How RBI is shaping the future of lending from Bengaluru’s HSR Layout

After cold mailing over a dozen people on LinkedIn every day, Nagalla got lucky with a job at the newly created Reserve Bank Innovation Hub (RBIH) in Bengaluru. But she wasn’t sure about the role. An event on financial inclusion organized by the hub, where founders of fintech startups participated, firmed up her mind.

Fifteen months on, she is facilitating multiple such events for RBIH across India.

“If we can help bring someone’s vision to life, there’s nothing more fulfilling," said Nagalla.

This is the underlying mission of the innovation hub, set up by the Reserve Bank of India (RBI), India’s central bank. Established on 23 March 2021, a few years after Shaktikanta Das took charge as the RBI governor, RBIH started with the aim of bringing innovation to the financial sector, as well as boosting financial inclusion. The idea was also to act as an interface between the central bank and fintechs.

The move was significant considering that RBI was not really viewed as a “friendly" institution by many fintechs at that point in time. Mint, in a story titled ‘Why new-age fintechs fear death by a thousand circulars’, narrated the tale of many companies that found themselves in the grip of new regulation; some were forced to pivot or slow down. RBI, on its part, was worried about data privacy, cyber security, unethical behaviour, lack of compliance and potential money laundering by the fintechs.

Startup @ HSR Layout

RBIH was inspired by a model from the Bank for International Settlements (BIS), which runs six such hubs across the world. BIS is an international financial institution owned by member central banks with a goal to foster international monetary and financial cooperation.

However, RBIH is a tad different—it is run by RBI, not BIS.

To run the centre, RBI roped in Rajesh Bansal, a former central banker and one of the founding members of Aadhaar, now the world’s largest biometric identification system.

Bansal had worked at RBI for over 17 years, in areas ranging from technology, financial inclusion and payment systems. At the Unique Identity Authority of India (UIDAI), the body which issues Aadhaar, he was responsible for designing India’s direct benefits transfer system.

“When I took charge in May 2021, RBIH was truly in its start-up phase. I received an appointment letter, but there was no office—nothing at all," Bansal told Mint during an interview in December last year.

The executive recently stepped down from RBIH.

After much debate, the board decided to set up its first office in Bengaluru. RBIH’s board has illustrious names, including Kris Gopalakrishnan, the former CEO of Infosys, Gopal Srinivasan, the chairman and managing director of TVS Capital, and Ashok Jhunjhunwala, an academic known for his work around industry-academia partnerships as well as innovation.

The Karnataka government offered space in a building owned by the Karnataka State Electronics Development Corporation Limited at HSR Layout, home to many startups. Unlike the typical RBI offices, which are adorned with large wooden panels and doors, the RBIH office wears a more contemporary and vibrant look. Bansal and his core team worked out of this office. A 60 member engineering team is based in a different building, a few blocks away.

The data in milk

One of RBIH’s initial projects was around agri-finance in India. It chose the Kisan Credit Card (KCC) scheme, which is the primary mode of financing agricultural working capital loans.

In October 2021, a team from the hub reached out to banks and visited Chamrajnagar district in Karnataka to conduct a field study. After several visits, which spanned over a month, the team observed that it could take three to four weeks for a farmer to access a loan. This delay was largely due to manual processes, extensive paper documentation, and the need for multiple visits to the bank.

“We realized that the entire process boiled down to nine API (application programming interface) calls," said Bansal. “So, I gave the team a challenge: Let’s make it happen in five minutes."

In August 2022, RBIH, along with the Federal Bank, conducted the first KCC transaction in less than five minutes.

RBIH did a similar project on cattle loans, where it aimed at leveraging milk-pouring data from cattle farmers. In India, most farmers are part of milk-pouring societies, which are often linked to larger federations like Amul. Farmers deliver their milk daily to these societies and receive payments, either in cash or digitally. These societies maintain records of their contributions—data spanning five or even 10 years.

This data could provide valuable insights into a farmer’s cash flow, significantly improving the loan underwriting process, RBIH realized.

A pilot project was run with a large private bank, enabling access to Amul’s milk-pouring data. This allowed the bank to underwrite loans more effectively, resulting in a drastic reduction of time required to process loans—from four-six weeks to just a few minutes. The process also became entirely paperless, marking a significant improvement in efficiency.

Based on insights from the two projects mentioned above, RBIH designed and developed the first digital public infrastructure (DPI) for credit called the Public Tech Platform for Frictionless Credit (PTPFC). This platform today facilitates banks to access authenticated data from central and state governments.

RBIH is a wholly owned subsidiary of the Reserve Bank of India. According to its annual report for fiscal year 2023-24, it incurred an expenditure of ₹2.1 crore on developing the public tech platform, which was later reimbursed by the central bank.

A new trinity is born

Soon, RBIH realised the potential of scaling up PTPFC and thus was born the Uniform Lending Interface (ULI).

On 26 August 2024, a year after it launched the pilot version of PTPFC, former governor Shaktikanta Das unveiled ULI at the RBI@90 Global Conference in Bengaluru.

“RBIH is on the verge of a major breakthrough with the creation of ULI. This new platform has the potential to become a foundational public digital infrastructure for India, much like UPI did for payments," said a board member who didn’t want to be identified.

“ULI is designed to bring together all the information needed for loan underwriting—including KYC details and possibly even account aggregator—into a single, standardized interface. By streamlining access to financial and non-financial data from various sources, ULI aims to make the lending process faster," he added.

Bansal explained that the focus isn’t on large loans, like ₹5 crore. Those are already being addressed by the market. “Our focus is on those whom the market isn’t serving. That’s where public policy plays a role."

Kuldeep Gautam, 30, is a government school teacher in Madhya Pradesh. He took to farming four years ago. Last year, he took a loan of ₹50,000 for the first time, from Union Bank’s Kothi branch in the state’s Satna district—he bought seeds and other materials needed for farming.

Gautam said that he had to visit the bank only twice to get the loan—once to enquire about the loan and the second time to submit his original documents. “Everything was digital this time. I got my loan sanctioned in two-three days," he said.

This is a big change from the time his father used to avail of KCC loans, when everything was offline; loans would take at least a month to be disbursed, he recollected.

RBIH next expanded beyond KCC and dairy farmers; it worked with banks to digitize the lending journeys of education, home as well as business loans. It also enabled the integration of banks with all credit bureaus—currently, most banks are integrated with only one credit bureau.

As of now, RBIH claims that 36 lenders and 50 technical service providers are currently live on the ULI platform. Both RBI and RBIH are betting that the new trinity of JAM-UPI-ULI will be a “revolutionary step" forward in India’s digital infrastructure journey

JAM is short for Jan Dhan accounts, Aadhaar cards and mobile numbers while UPI is unified payments interface, the popular instant payment system developed by the National Payments Corporation of India (NPCI).

Fraud catcher

RBIH is trying to solve yet another modern-day problem—mule accounts. These are bank accounts used by criminals to launder illicit funds. They are often set up by unsuspecting individuals lured by promises of easy money or coerced into participation.

Through an artificial intelligence-based model called MuleHunter, the innovation hub is trying to identify such accounts more effectively.

After consultations with bankers, RBIH realized that banks were relying on a ‘business rule engine’ method to detect mule accounts. These systems operate on predefined rules—if a certain set of conditions are met, the account is flagged as a suspected mule account. This approach, while useful, has its limitations.

The tool RBIH developed uses 19 distinct behavioural patterns associated with mule accounts to spot suspicious activities in real time. Some of these patterns include a customer opening a zero balance account with the help of a business correspondent; an account suddenly seeing high volume transactions after remaining dormant for many days; a customer transacting ₹50,000 or more when the stated income is ₹2 lakh.

While RBIH says it is currently testing the system with two public sector banks, most large private banks remain circumspect about using MuleHunter. They already have invested in tools that can tackle such accounts.

“We already have a model which is doing quite well," a private banker reasoned. “But we can adapt any feature from the MuleHunter that we don’t have."

The matchmaker

RBIH, meanwhile, set up a ‘FinTech and Startups Accelerator’. It brings together startups, regulators, incubators, investors, banks and other financial institutions with a singular aim— fast track innovation and financial inclusion. Accelerator programmes are part of this plan.

Impactsure Technologies is one fintech that says it benefited from such a programme. The company builds artificial intelligence-powered document analytics solutions for banks and financial services companies. Chief executive officer Dharmarajan Sankara Subrahmanian said that after attending a fintech accelerator programme, the company now works with 10 banks; it used to be two earlier. With RBIH’s help, things just got done faster.

The hub also wants to be a bridge between the central bank and fintechs, a relationship that runs low on trust. It is helping RBI officials host monthly meetings with startups in different cities.

“You need someone who is constantly in touch with the (fintech) ecosystem, can talk their language, can communicate more openly with them," Rabi Sankar, deputy governor at RBI, told Mint. Through the innovation hub, the idea is to communicate the central bank’s priorities. “And the fintech ecosystem can communicate its requirements, its concerns to the RBI," Sankar added.

For the Global South

So, what can we expect from RBIH, going ahead?

With Bansal stepping down, strategic changes in the hub’s direction cannot be ruled out. Rakesh Ranjan, the centre’s chief digital officer, is the acting CEO as of now.

Some bankers do question the role of RBI in running an innovation hub—shouldn’t the central bank simply be a facilitator and leave innovation to the private sector?

“The regulator running a lending platform is an idea whose time is yet to come," said G. Padmanabhan, former executive director, RBI. “If at all necessary, which I’m not sure about, it is best managed by a trusted third party owned by lending entities," he added.

Some point to initiatives like the MuleHunter. RBIH, here, is trying to compete with fintechs, who have better access to both data and technology.

But in the minds of many RBI officials and Bansal, the former CEO, the vision for the hub is clear. They want RBIH to be recognised as the innovation hub of the Global South. India needs 100,000 fintechs to serve over 1.5 billion adults by 2047, Bansal believes. “There is a clear need for hyper-local fintechs across the country that can create financial products tailored for women, especially in regions like Jharkhand and Chhattisgarh," he said.

RBIH sees a crucial role for itself here, a goal that has inspired employees like Chaarmikha Nagalla to keep going.

This article has been updated to reflect the correct date of incorporation of RBIH and the model on which it is based and also attribute a quote to its former chief executive officer Rajesh Bansal.