Major PSU banks to go live on account aggregator system by July-end

After the finance minister directed public sector banks to join the account aggregator (AA) ecosystem, 5-6 major ones, including State Bank of India (SBI) and Bank of Baroda are expected to go live by July-end.

Sahmati, an industry alliance for the AA ecosystem, has been working with PSU banks to get them onboarded for quite some time now.

So far, Union Bank of India and Punjab National Bank (PNB) have gone live on the AA ecosystem.

While Union Bank has been live for a while, PNB went live earlier this month.

Bank of Maharashtra is also expected to follow suit soon.

Bank of Maharashtra executives said the lender will be on the account aggregator network before the July 31 deadline.

The focus is on making end to end Straight Through Processing (STP) backbone robust for ensuring business gains.

"Bank of Baroda is working on developing multiple use cases for providing enhanced product offerings using the account aggregator framework.

"We are confident of meeting the timelines set by the honourable FM”, said Akhil Handa, Chief Digital Officer, Bank of Baroda.

Major private banks such as HDFC Bank, ICICI Bank, Axis Bank, IndusInd Bank, Kotak Mahindra Bank and Federal Bank have been the early ones to get onboarded onto the AA ecosystem.

Currently, 12 private and public sector banks have gone live on the ecosystem.

And overall, 54 financial institutions, including banks, non-banking finance companies, insurance companies, insurance brokers, stock brokers and investment advisors, have gone live on the ecosystem.

Speaking to Business Standard, B G Mahesh, co-founder, Sahamati, said, “We expect 5-6 large public sector banks, including SBI and Bank of Baroda, to go live on the AA ecosystem soon. Each of them is in an advanced stage of implementation.

"The banks are working out a plan to not just enable sharing of data as FIP, but also roll out use cases to access financial data of customers from other banks or financial sources and offer competitive products.”

“Public sector banks, as financial information users (FIU), will make a big impact on financial inclusion.

"Many who weren't having access to formal credit could qualify for small-ticket loans from banks because banks will have access to the borrower's verified, tamper-proof financial data.

"Currently 300 million-plus accounts are enabled on AA.

"As more banks join, the number of AA-enabled accounts will soon cross 600 million,” he said.

Public sector executives pointed out that joining the network is technical work and just a start.

The question is whether or not banks understood the implications -- it is a rehaul in the ecosystem and not a just change in the business model.

For benefiting from the network, it will mean having centralised credit underwriting and processing.

That too with the capacity to work round the clock over a period to tap business from millennials.

"Not being able to respond promptly means a real threat of losing business," public sector bank executives said.

Account aggregators are licensed non-banking financial companies (NBFCs) that enable instant exchange of financial data between financial information providers (FIP) and FIUs with the explicit consent of customers.

They are “data-blind” as the data that flows through the system is encrypted and can be processed only by the FIU for whom it is intended.

Also, an account aggregator can;t store any user data.

So, the potential for leakage and misuse of user data can be prevented.

So, an account aggregator acts as a conduit between FIUs and FIPs but doesn't process the data.

“We are now working with the Sebi entities to get them onboarded and have also begun work with large insurance firms.

"The insurance regulator is also very committed to the AA ecosystem.

"Our focus was mainly on the banking sector, now it will be cross-sectoral (securities, mutual funds, insurance, pension funds etc)”, said Mahesh.

In terms of usage, digital NBFCs and private banks have taken the lead and integrated AAs in their digital journeys for MSME and retail lending.

The initial results have been encouraging with over 800,000 accounts linked and consent shared through AA.

The consent requests show healthy month-on-month growth of 60-65 per cent and we do expect the volumes to get a big push with public sector banks joining in the near future, he added.

Talks are also on to onboard the GST Network and Sebi supervised entities.

Further, initial discussions have taken place with insurance behemoth Life Insurance Corporation (LIC) as well.

In a meeting with heads of public sector banks and regional rural banks last week to review operational and governance reforms among regional lenders, finance minister Nirmala Sitharaman instructed state-owned banks to onboard the AA system by the end of July.

She also asked PSBs that act as sponsors and hold 35 per cent in RRBs, to prepare a roadmap to further strengthen regional lenders, and support post-pandemic economic recovery.

The Indian Banks’ Association (IBA) and sponsor banks have also been advised by the finance minister to assist RRBs with technological advancements and conduct workshops to share best practices.