Things to Know before Applying for NBFC Account Aggregator License

NBFC Account Aggregator can be defined as a financial entity that functions as an account aggregator for customers. The Account Aggregator (AA) requires NBFC Account Aggregator License from RBI to operate in the country. The NBFC Account Aggregator gives information about different types of account held by a customer in various NBFCs at a time. The consolidated and organised financial information of a customer is in the form of retrievable data about the financial engagement of a customer in products like mutual funds, insurance, savings, etc. 

Significance of NBFC-AA in India

“At present, financial asset holders such as holders of savings bank deposits, fixed deposits, mutual funds and insurance policies, get a scattered view of their financial asset holdings if the entities with whom these accounts are held fall under the purview of different financial sector regulators.” – says the RBI about the rationale for NBFC -AA.

The above quote explains why RBI and other regulators felt the need to introduce NBFC-Account Aggregators into the Indian market. Generally, people hold different financial products in various financial institutions regulated by RBI, SEBI, EPFO, etc. The customers could have a vague idea about these financial holdings and if someone asks for a detailed account of these holdings then customers feel the need to visit the respective institution of their holding to get the detailed information. The purpose of an NBFC Account Aggregator is to give information to the customer all the financial products in one place, in a common format that is easy to understand. The RBI thus came with a plane to create NBFC-Account Aggregator License and give NBFC AA license to new players. It also gave master instructions for NBFC AA to operate in the Indian market. The companies wanting to register as an NBFC-AA need to apply for NBFC-Account Aggregator License and need to abide by all the master instructions to maintain the validity of their license. As non-compliance could lead to the cancellation of NBFC-AA license of the company, we have given all the necessary information related to operations of NBFC-AA in this article. We have also given detailed information about getting an NBFC-AA License in India and what are the regulations to follow. Let’s start with a simple overview of the NBFC Account aggregator license. 

NBFC Account Aggregator Licence Overview

Before understanding the NBFC AA license application process, we must understand the utility of the Account aggregator. The NBFC Account aggregators are empowered to share financial information across institutions apart from acquiring assent and keeping the record in a set format. This leads to easy data sharing from financial information provider (FIP) to financial information user (FIU). Let us understand these two terms in detail in the following section. 

• Financial Information Provider (FIP): An Entity offering monetary services directed under the budgetary area. 
•  Financial Information User (FIU): The financial information user could be customers or other NBFCs seeking information about holdings of any persons. These institutions include RBI, IRDA, SEBI, PFRDA. The monetary information shared between the FIP and FIU is characterized and transferred under the master directions given by RBI’s Department of Non-Banking Regulation (regulatory authority for NBFC AA). 

Definition of Financial Information under Master Directions

• Deposits with NBFCs
• Commercial Paper (CP)
• Structured Investment Product (SIP)
• Certificates of Deposits (CD)
• Government Securities (Tradable)
• Commercial Paper (CP)
• Exchange-Traded Funds
• Indian Depository Receipts
• Collective Investment Schemes (CIS)
• Equity Share
• Bonds Debentures
• Mutual Funds
• Alternative Investment Fund
• Insurance Policies

Advantages of Getting NBFC-Account Aggregator License

The economy of countries around the world is facing a recession due to COVID-19 crisis. Governments around the world are looking to bring their economies back on the feet with various measures taken for revival. Even the Government of India is trying hard to keep the Indian market and economy rise from this crisis as quickly as possible. Therefore, the Govt is taking measures to ensure that new companies who are trying to enter the Indian market by applying for NBFC Account aggregator License do not face any difficulty. Let us understand the advantages of getting an NBFC AA license in the current scenario. 

Operational Advantage

The modern lending practices are mainly based on the partnership model of a funding partner (NBFC) and a fintech company (sourcing partner). Now, these fintech companies are always looking for credit scores and other financial information of the customers to ensure that they are the right client to lend money. But, the credit scores of the customers can be accessed by NBFC partners only as they are registered as members of the CICs or credit information companies. Hence, most NBFCs were facing issues as the restriction on sharing the credit score information with the FinTech acted as a hurdle and hampered the smooth flow of operations during the process of credit approval. Now, if a company has NBFC Account Aggregator License from RBI, then it can easily pull all the financial data of the customer from any financial regulator and keep it in an organised and easily retrievable format. Of course, this will be done after getting consent from the customer. Due to the permissions of RBI, this information can be shared with any FIU registered with financial regulators like RBI, IRDA, SEBI, etc. Many NBFC AA performs data analytics on the financial data to give a meaningful presentation to the customer or the FIU. 

It is obvious that access to data can act as a gold mine to any company with an NBFC AA license. This makes obtaining an Account Aggregator License from RBI a profitable opportunity for firms who are capable of handling and securely moving high volume data across different platforms. 

The model of transections can be understood easily by the following example,

Suppose customer A applies for a loan through an app in an NBFC (which is an FIU in this case). Now the customer has simultaneously given consent to an Account Aggregator NBFC to access its financial information from FIP (Regulating Institutions). Once the customer has applied for the loan in FIU, the FIU will reach AA for financial information of the customer to verify the eligibility of the customer for the loan. The AA has the consent of the customer to ask for their information from the regulating Authorities or FIP. Once the AA receives the Information from FIP, they will give this information to the FIU for analysis and further processing of the loan. The whole process is online and is completed quickly leading to the smooth processing of loans for the eligible customer. 

Other Advantages of NBFC Account Aggregator License

• Ensures the smoother flow of credit information during any process and so acts as an important factor in any lending process. 
• Catering to a variety of clients in online mode becomes easy.
• Reduces verification time for lenders and hence loan processing time is also reduced leading to an overall increase in efficiency of the lending process. 
• Reduces the risk of lending bad loans for NBFCs as the profile of a customer could be easily analysed before considering them eligible for the loan.

How NBFC Account Aggregators are Boosting Financial Inclusion

The Government is constantly looking to provide support to boost India’s fintech industry. Raising new NBFC account aggregators is one such step by RBI which seeks to end disparity in customer’s financial data and get it on a single platform in a simple format. Even new start-ups and private banks have started adopting RBI Account aggregator framework to bring fluidity to data transfer. 

Many new fintech companies and private banks have now started to incorporate valuable information from use cases of Account Aggregators. Bajaj FinServ, Axis Bank, HDFC Bank, IndusInd Bank, Kotak Mahindra Bank, ICICI Bank, IDFC FIRST Bank, and SBI have started studying the framework that makes financial data sharing of customers easier across platforms. The RBI Account aggregator framework used in the NBFC AA gets consent for the customers to share their data to the NBFCs who seek this information to validate the customers’ request for a loan. Notably, the framework denies the storage of customers’ data to discourage any misuse. The same framework could be utilised in banks and fintech firms too which can lead to optimisation of banking product offerings according to their needs and so could increase in financial inclusion.

Can RBI Account Aggregator Thrive in the Fintech Boom?

The fintech firms are constantly looking for this data to optimise their process of lending and products offered for personal finance management, wealth management, and financial consultation to serve their customers better. This naturally makes us ask the question that will account aggregators based on RBI’s framework thrive in any FinTech Boom. Sequoia Capital’s MD Rajan Ananadan had said,

RBI’s account aggregator framework will provide a plethora of opportunities to Indian fintech start-ups. Although UPI has democratised digital payments and provided a space for the fintech start-ups to grow, the RBI’s account aggregator platform will provide 10x more opportunities to fintech start-ups.

Regarding the Same, Vice President (Strategy and New Initiatives) of Lendingkart Mr. Deepesh Goyal has said that their company receives nearly 1 million applications from different SMEs but only 10% are approved due to lack of financial data. He said, 

“With this, we will be able to cater to underserved customers as well as improve our credit underwriting,”

This indicates that the Indian economy could see an increase in financial inclusion in the coming years due to account aggregators. Many companies have also started to build and test new technological infrastructure to quickly adopt an account aggregator framework by use cases on their internal data. Apart from these start-ups, even the top private banks have also started to use AA framework on pilot basis to track its benefits. For example, 

Kotak Mahindra bank is finding use cases for their Account aggregator framework to be used in broking, banking, insurance, and wealth management. The bank has started running trials on its 50K employees and once satisfied with the results it is planning to start trial on customers. They have created an application through which their employees can generate AA IDs to get access across their financial portfolios through all platforms of the bank. 

Responsibility of NBFC Account Aggregators

As understood in the above sections, the prime responsibility of an NBFC Account aggregator is to obtain data of a client after his/her consent and share it with a financial information user registered under regulatory authority. The RBI has laid down certain rules and responsibilities for the operation of NBFC-AA in its master directions. The stated responsibilities are as follows:

• Acquire client approval or consent to access their information form Financial information providers. 
• Acquire principal approval to conduct such activities.
• Make a strategy for identification of the appropriate client.
• Money related data of the clients must be protected. 
• Create a citizen’s charter to protect the right of the clients. 
• The NBFC AA must guarantee the customer that no data will be moved or recovered without getting their assent. 

Necessary Conditions to Get NBFC Account Aggregator License

• To get an NBFC AA license, a company needs capital of at least 2 crores. However, organizations get a one-year timeframe to raise this capital in the wake of getting in-principal approval from the Reserve Bank. Here the organization cannot give any other services except NBFC account aggregation. 
• In the time frame of one year, the company will be required to set up all the bind ups and vital information required to operate the business of account aggregation. This is a necessary condition to get in-principle approval from RBI. 
• If a company wants to get into the business of account aggregation related to accounts under the regulation of other regulators like SEBI, IRDAI, then it can be absolved from obtaining approval of RBI. The approval is only required for companies seeking NBFC Account aggregator license who are not permitted to conduct money-related operations like other NBFCs. 
• The data given to the financial information user by the NBFC AA will be given concerning the client only. However, these NBFCs cannot conduct any fund-based activity like other NBFCs. They are also prohibited from using monetary resource data of clients for any other reason apart from aggregation purposes. 

Procedure to Get NBFC Account Aggregator License

The procedure to get the NBFC AA license is completed according to the master directions given by Reserve Bank of India. The NBFC of this category should not have any client interface or a public fund. Let us understand the process of registration in the following section.

Steps to be followed for NBFC Account Aggregator License and Registration

• The first step to be followed is the registration of the company according to the Companies Act, 2013.
• The company must have some fundamental infrastructure that can support the offering of such services. 
• The company must have an adequate capital structure to seamlessly offer account aggregator services. 
• The general image of the company’s administration should be free or unbiased of public intrigue.  
• A prerequisite amount of Rs. 2 crores are required to apply for getting the certificate of registration from RBI. Without getting the registration certificate the company won’t be allowed to operate as an NBFC account Aggregator. 
• The company should provide information related to its data innovation framework that can provide services of account aggregation. 
• The promoters of the NBFC Account Aggregator should be legitimate and fit. 

Criteria to Determine the Fit-in Eligibility of NBFC AA Promoters

• The company must have created a strategy to determine whether the promoters are appropriate according to the rules of RBI. 
• A statement will be acquired from the CEO/managing directors /directors according to the organization under directions.
• Furnish yearly explanation on the change of CEO/directors/managing director appropriately certified by the Statutory Auditors regarding the fit and legitimate standards within 15 days from the closure of the money related year.
• An agreement deed will be obtained by the managing directors/directors/CEO according to the organization under directions.

Guideline to be Followed by NBFC AA in Validity Period of In-principle Approval

During the legitimacy period of the company, it needs to come with a plan to create a data innovation platform and also complete all the necessary pending documentation work. Without completing the documentation work the company won’t be allowed to conduct activities. 

On non-compliance on the following points, RBI reserves the right to drop the CoR of NBFC-AA 

• If the NBFC Account Aggregator stops conveying information regarding its record collection activities for clients. 
• If the organisation doesn’t follow the conditions set by RBI for operation. 
• If in future an organisation is deemed unqualified to conduct operations due to taking part in any restricted activity mentioned in master instruction.

Data Security Norms to be Followed by NBFC AA

The obligation to maintain a legitimate IT framework to conduct operations is set by RBI to ensure the safety of the monetary data of client handled by the NBFC Account Aggregator. The accountability to maintain security to stockpile or move this data from money related data suppliers (FIPs) to budgetary data clients (FIU) lies on the account aggregator (RBI) itself.  The Account aggregator has to

• Utilize the innovation stage to ensure safe upkeep of the monetary data.
• Take vital steps to control the risk of transferring information to wrong hands.
• Get their data systems Audited by CISA certified external auditor. 

So, you must have understood that giving NBFC Account Aggregator License to companies is a welcome step by RBI which has eased the process of lending by NBFCs. Now, many companies are trying to take advantage of the current situation in the economy where the government is trying to take measures to improve the financial sector by streamlining their services. Therefore, entrepreneurs who are looking to enter the Indian market by establishing an NBFC Account Aggregator should apply for NBFC Account Aggregator License and Registration. It is recommended that new entrepreneurs should reach out to firms specializing in the registration process. These firms have experts who can help the customers to get their NBFC AA license easily. Hiring an expert will help to compile all the necessary documents, filing the Application correctly and getting all the verification and paperwork done on time. So, do not wait any more, just hire an expert from any reputed firm and get your NBFC AA license as soon as possible.