Why in the News?

• The Reserve Bank of India has allowed interoperability among financial Account Aggregators, paving the way for investors to view bank deposits and market-linked investments through a single consolidated account statement.

What’s in Today’s Article?

• About AAs (Meaning, Changes by RBI, Importance of Interoperability, Benefits, Significance, etc.)

About Account Aggregators

• Account Aggregators (AAs) are entities registered as NBFCs under the RBI’s framework that facilitate the secure sharing of financial information based on customer consent.
• They act as a bridge between financial institutions and users, enabling financial information to be shared with entities that need it for purposes such as lending or financial management.
• For example, a customer can consent to the sharing of relevant financial information with a lender. The Account Aggregator facilitates this data flow without itself becoming the owner of the customer's financial assets.
• The system is designed around consent-based access to financial information, allowing users greater control over how their financial data is shared.

What Has the RBI Changed?

• Until now, consolidated financial information was fragmented across different systems.
• A Consolidated Account Statement (CAS) could provide information on either banking assets such as deposits or dematerialised holdings such as stocks, mutual funds and bonds.
• There are around 17 Account Aggregators registered under the RBI’s NBFC-AA category, operating separately across these financial-information ecosystems.
• The RBI has now allowed interoperability among Account Aggregators, meaning information can be aggregated across different AAs.
• The central bank has also facilitated SEBI-regulated depositories to include information relating to deposit accounts in their consolidated account statements. The measures are to be implemented by December 31, 2026.

What Changes for Investors?

• The major change is the possibility of a single, comprehensive view of financial assets.
• The consolidated statement could include:

• Fixed deposits
• Recurring deposits
• Stocks
• Mutual funds
• Bonds and other securities
• Other financial instruments regulated by the RBI and SEBI

• This can reduce the need for investors to track separate statements or applications for different categories of financial assets.
• For an individual investor, the reform could therefore make it easier to understand the overall composition of their financial assets and monitor investments across banking and securities markets.
• However, on the banking side, the consolidated view will cover assets such as deposits and not loans.

Importance of Interoperability

• The key significance of interoperability is standardisation and reduced fragmentation of financial information.
• Previously, different Account Aggregators operated separately, which could create friction when financial information was distributed across different systems.
• Greater interoperability can allow verified financial information to be accessed through a more integrated framework, subject to customer consent.
• This is particularly relevant for credit assessment. Lenders can potentially obtain a more comprehensive picture of a borrower's actual financial behaviour and cash flows rather than relying predominantly on traditional credit scores, collateral or information directly submitted by borrowers.

Benefits for MSMEs and Smaller Businesses

• The reform could have implications beyond individual investors.
• Small businesses and Micro, Small and Medium Enterprises (MSMEs) can face difficulties in obtaining credit because lenders may not have standardised access to their financial information.
• An interoperable Account Aggregator ecosystem could enable lenders to access consent-based, verified financial data more efficiently.
• This may help:

• Improve assessment of actual cash flows
• Reduce the time required for loan underwriting
• Improve the quality of credit assessment
• Allow lenders to price risks more accurately
• Reduce dependence on collateral and borrower-submitted information

• Thus, interoperability could contribute to more efficient data-driven credit underwriting.

RBI-SEBI Coordination

• The reform also demonstrates the importance of coordination between financial-sector regulators.
• Bank deposits fall within the regulatory domain of the RBI, while securities and depositories are regulated by SEBI.
• Integrating information across these domains therefore requires coordination between the two regulatory frameworks.
• The current reform focuses on bringing bank deposits and investments into a more integrated information ecosystem.

Scope for Further Expansion

• The framework could eventually expand beyond banking and securities.
• One potential area is insurance. If the insurance sector is integrated into the Account Aggregator ecosystem, an individual's consolidated financial statement could eventually include insurance policies alongside deposits and investments.
• Such an expansion would require cooperation involving the Insurance Regulatory and Development Authority of India (IRDAI) along with the RBI and SEBI.
• The immediate approach, however, is gradual integration, beginning with bank deposits and investments.

Significance for India’s Digital Financial Architecture

• The Account Aggregator framework represents an important development in India's broader consent-based financial data architecture.
• Its significance lies not simply in creating a convenient investment statement but in enabling verified financial information to move more efficiently between institutions while retaining customer consent as an important element.
• If interoperability is implemented effectively, it could reduce information asymmetry between borrowers and lenders, simplify personal financial management and improve the efficiency of financial services.