With a view to facilitate cash flow-based lending to MSMEs, it has been decided to include Goods and Services Tax Network (GSTN) as a Financial Information Provider (FIP) under the Account Aggregator (AA) framework. Department of Revenue shall be the regulator of GSTN for this specific purpose and Goods and Services Tax (GST) Returns, viz. Form GSTR-1 and Form GSTR-3B, shall be the Financial Information.
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Importance of This Development:
Facilitate cash flow lending to the micro, small, and medium enterprises (MSMEs). The AA network had been in discussion with the GSTN network for their onboarding for a long time as this would give financial institutions access to data regarding small businesses, which would help them to extend loans to such businesses.
What Has Been Said:
All major public sector banks and private sector banks are live on the network and many large non-banking finance companies (NBFCs) have also gone live, expert are saying.
Recently, the Insurance Regulatory and Development Authority of India (Irdai) has asked the FIPs in the insurance sector to enter into a contractual framework with AAs. Even the market regulator – Securities and Exchange Board of India (Sebi) — has directed stock market intermediaries such as asset management companies (AMCs) and depositories to join the AA network.
About The Transition: Account Aggregator (AA) framework:
Launched in September 2021, account aggregators are licensed NBFCs that enable instant exchange of financial data between FIP and FIUs. They are responsible for providing services that include the transfer — but not storing — of a customer’s data.
So far, there are six AAs in India with operating licenses and nine AAs with in-principle approval from RBI. As per the latest data, around 2.47 million cumulative accounts have been linked to the AA network while 2.5 million cumulative counts of consent request have been successfully fulfilled.
The Indian government has been pushing for faster adoption of the AA network, with the finance minister earlier urging public sector banks to join the network on priority. Earlier this month, the stock market regulator the Securities and Exchange Board of India (SEBI), too, joined the network.
About Financial Information Provider (FIP):
An FIP would serve as a data repository for an account aggregator, though the data with it can only be accessed by an aggregator. The aggregators are not permitted to store any of the customer data they access via an FIP.
There are several other duties of an FIP, which include ensuring data security, user authentication and verification and secure data transfer to account aggregators.
By including the GSTN as an FIP, the RBI wants to facilitate cash flow-based lending to MSMEs. The GST network would store the GST data of a company, which will help financial institutions calculate an MSME’s cash flow and extend loans.