Credit Innovation Hindered by Fragmented GST Consent Flows, Limited AA Reach: Axis Bank’s Vijay Shetty

Even as India’s credit infrastructure deepens, fundamental questions remain around how capital reaches the most productive but structurally excluded corners of the economy. The issue is no longer just about the availability of liquidity but about the architecture through which risk is understood, priced, and distributed. Traditional underwriting, built on static proxies like balance sheets and collateral, has failed to keep pace with the behavioural signals now available through real-time payments, GST data, and digital footprints. But institutional adoption of these signals remains uneven, constrained by fragmented consent flows, interoperability gaps, and regulatory friction.

Talking to FE BFSI, Axis Bank’s Vijay Shetty sheds light on navigating the liminal space between legacy lending models and emerging data ecosystems. Shetty, who heads the Commercial Banking Coverage Group at Axis Bank, outlines how the institution rewires its approach to risk by embedding credit flows directly into transaction layers through ERP systems, supply chain platforms, and marketplace APIs. He also explains the role of cash-flow-based lending, account aggregator rails, and co-lending models to create a more fluid, federated credit architecture. Edited excerpts below:

What structural or behavioural barriers do you see restricting credit to viable but underserved enterprises despite years of targeted interventions by the government?

As per a recent survey, India’s MSME credit gap remains at around 24 per cent due to a mix of structural and behavioural barriers. A significant portion of MSMEs still operate outside the formal ecosystem, lacking audited financials or acceptable collateral, which makes them invisible to traditional underwriting models. Limited credit histories further restrict access, especially for new-to-credit borrowers. 

While banks have begun exploring alternative data sources, challenges such as fragmented consent mechanisms for GST data and the limited reach of the account aggregator (AA) framework have constrained the scalability of these innovations. 

To bridge this gap, banks have moved towards cash-flow-based credit assessment models that leverage digital transaction data. Strengthening credit guarantee schemes, accelerating MSME formalisation, scaling supply chain financing and simplifying digital onboarding journeys are being undertaken to help bring more viable enterprises into the formal credit fold.

Axis Bank is optimistic about this space and we have gained an incremental market share of 10-11 per cent in this segment in the past four years. Our Bharat Banking initiative has always focused on reaching deeper into the country's geographies, bridging the gap for underserved citizens. We have adopted various technological interventions, including revamping our lending platform and enabling digital unsecured loans to make the process seamless and quick.

To what extent can mechanisms like cash flow lending and the Account Aggregator framework replace traditional underwriting models?

UPI-based cash flow lending and the Account Aggregator (AA) framework are set to transform underwriting for nano and micro businesses, especially those lacking formal credit histories or income documents. By aggregating real-time transaction data and banking behaviour, these tools enable lenders to assess creditworthiness more accurately and inclusively.

While traditional underwriting relies heavily on documentation and credit scores, UPI and AA flips this model, allowing for a data-driven, behaviour-based model. Several financial institutions, including us, have already seen promising results in pilots, which show lower default rates and expanded credit access.

As embedded finance gains prominence, is Axis Bank building tailored API-based lending models and how do you underwrite risk in such scenarios?

Embedded finance via ERPs, marketplaces, and procurement portals allows us to meet MSMEs where they are. Axis Bank is leveraging both partnership capability and API-based lending models that plug into these ecosystems, enabling contextual credit delivery, whether it’s vendor financing through a supply chain platform or invoice-based working capital within a billing software. 

Underwriting here relies less on traditional documents and more on ecosystem data such as order history, fulfilment behaviour, and platform performance. It’s a trust-based, transaction-led model of lending, and we believe it will define the next phase of MSME credit growth.

What structural shifts or regulatory recalibrations, according to you, would enable expanding SME exposure without compromising asset quality?

We are seeing renewed strategic focus on SME portfolios, supported by a seamless digital journey. This is made possible by harnessing GST data, digital banking infrastructure, and the Account Aggregator framework. These tools ensure accurate credit assessments, even in the absence of traditional documentation. Encouragingly, SME portfolios have shown resilient performance, which not only supports credit expansion but also opens opportunities in transaction banking and fee-based services.

How has the stress in the SME portfolio evolved post-pandemic, especially amid tightening monetary conditions?

During the March quarter, the SME and mid-corporate segments together grew at 14 per cent year-on-year. Our overall SME portfolio has shown strength, as at Axis Bank, we have enhanced our monitoring frameworks to move beyond traditional early warning triggers. We are integrating GST trends, digital payment patterns, and even ERP-linked data where available. 

This shift from static to behavioural risk models is essential, not just to manage provisioning better, but to extend timely support before stress deepens. We believe proactive risk management is key to building sustainable MSME credit in a dynamic environment.

Do you see value in co-lending, alternate credit scoring, or region-specific risk models to serve the complex MSME landscape more effectively?

India’s MSME landscape is incredibly diverse — by sector, region, formality, and maturity. A centralised strategy simply cannot do justice to this heterogeneity. Axis Bank adopts a multi-layered approach: from cluster-specific lending programs in hubs such as Pune, Surat and Coimbatore, to alternative credit models in metros, and co-lending tie-ups in rural belts. Our tech stack is designed to serve SMEs across all sectors, geographies and different life cycle needs. This allows us to combine the scale of a universal bank with the agility of local insight, ultimately enabling MSMEs across all tiers to grow with confidence, not constraint.