Digital Lending: Rule-engines & Analytics

In July 2015, Digital India campaign was launched by Govt. of India with the aim of making our Nation empowered in the field of technology. The soul of Digital India is centred around three key areas – Digital Infrastructure as a utility to every citizen, Governance & Services on demand, and Digital Empowerment of citizens. Our country has seen a sea change in the past three decades in all the possible aspects ranging from increase in GDP, Export-import, Forex Reserves, per capita Income, Standard of living, Consumer choices, Travel, Education, and so on, the list is endless.

So what did SBI do?

In olden times, a customer had to struggle running through the branches, fillingup forms and arranging for a long list of the requisite documents for availing banking services. Against which now the customer has comfort of accessing practically every banking facility over his phone, at a place and time of his comfort and convenience. State Bank of India has migrated a plethora of banking services onto the internet for the benefit of all- from opening an account to making a fixed deposit to remittances to tax payments, all the services are available in online mode 24 * 7. Not just limiting to the deposits services, SBI has digitised the credit delivery process as well, ranging from Personal & Auto Loans to Home & MSME loans.

Digital Lending: the solutions we invented and re-invented

The first link in the chain was “Contactless Lending Platform (CLP)” through the fintech portal psbloansin59minutes.com launched in Nov 2018 by the Hon’ble Prime Minister. In just three months from the launch date, the portal emerged as the largest online lending platform, as per a report by global financial firm Credit Suisse. MSMES and Individuals use this web-based application to avail quick and hasslefree loans from 20+ banks as well as NBFCS. The appraisal is done by a rule engine on the portal based on the data points of the customer viz. IT returns, Bank statements, CIBIL check and additionally GST returns for MSME customers. The eligibility is calculated based on analytics and in-principle sanction is awarded in real time. SBI has been in the forefront in making CLP a huge success wherein the usual turnaround time of processing a proposal from 20-25 days is now reduced to 59 minutes. On approval & completion of documentation and other formalities, the loan is disbursed in 7-8 working days by the Bank. SBI was amongst the first bank to integrate with CLP wherein the data/information keyed by the customers in the website flows seamlessly in its credit processing applications. Through CLP, SBI is offering a whole range of Personal Loans, Auto Loans, Home Loans and MSME Loans at competitive rates while maintaining their pole position.

With the fruits of digital credit appraisal in its basket, SBI went a step further in inventing a webbased application called “SBI e-mudra”. It is an application for general public to avail Mudra loan of Shishu category up to Rs 50,000/- through an end-to-end digital journey with no manual intervention. The basic tenets of SBI e-mudra are providing simple, intuitive & automated credit delivery journey thereby giving control of the whole process to the applicant. The entire loan journey viz. loan application, processing, sanction, document execution, opening of loan account, disbursement, and credit to account

is digitised and on real time basis. Since its launch in 14th August 2019, the application has been a game-changer in the digital world of credit delivery. Any individual who has a mobile phone and an Aadhaar linked bank account in SBI can apply through this application. The application uses Aadhaar credentials for KYC verification and the inbuilt rule engine assesses the eligibility based on the satisfactory credit bureau check and the transaction history. After according sanction, the terms & conditions are accepted by the customer through Aadhaar OTP based e-signing. The complete process is a radical re-designing of the way a bank loan is processed. The simplicity and complete digitisation of the process has made SBI e-mudra an instant hit among the masses. Since the launch, around 43,000+ applicants have benefited out of this application. Appreciation and awards pouredin to acknowledge this unprecedented step in the Indian banking industry when SBI e-mudra was awarded with the coveted IBA Banking Technology award, 2019-20, for “The Most Innovative project using Technology”. Motivated by the warm response, the next version titled “SBI e-mudra Branch Assist” was launched on 1st February 2020 whereby in-principle sanction for Mudra loans from Rs.50,000 upto Rs. 1 lakh is accorded. Disbursement takes place after completion of due-diligence of the borrower by the Bank.

With personal and MSME sectors getting served through IT products, agriculture segment was not left behind either. The bank tied up with “Paisalo Digital Limited”- a non-deposit taking NBFC, to make the reach of bank’s credit deeper and wider. With this theme “Co-origination of Loan by SBI & NBFC” for loans upto Rs.1 lakh was launched on 30.09.2019. The NBFC identifies the prospective borrowers, passes on the lead and the loan is sanctioned digitally based on the SBI’S credit rule engine. The disbursement is also done digitally by SBI & NBFC in the proportion of 80:20. Not just limiting to disbursement, Co-origination has gone a step further in automating the reconciliation of recovery proceeds as well, thereby making the full loan life cycle digital at SBI end. As on 31.07.2020, more than 11,100 agriculture loans have been disbursed.

Pre-approved Loans

With the vision to transform the Bank into a Digital and Data Driven Next Gen Bank, smart lending was introduced across the board through analyticsbased credit offers, Credit @ Click, end-to-end digital retail loans and cash flow based lending for MSMES.

SBI introduced the Pre-approved Personal loans (PAPL) for individuals through its YONO Personal app in 2017. PAPL is a hybrid of rule-based credit engine for initial identification of customers and an Analytics based propensity model for short listing of prospective borrowers. With more than 8 active variants, loans worth more than Rs. 20,000 crores have been disbursed since 2017 with a delinquency of less than 0.40 %

State Bank of India being a pioneer in SME lending has always been a front runner in providing the best class products and services to its customers. In order to meet the key expectations of digital lending to this segment, the Bank has recently launched a digital loan product, Pre-approved Business loan-pabl for its existing MSME customers. This product creates a paradigm shift from the existing Balance Sheet based lending to Cash Flow based lending. Under PABL, a credit facility upto Rs 10.00 Lakh is made available to the customers at the click of a mouse.

The primary objective for this project is to make available a line of credit for the MSME customers, which can be availed digitally for meeting their urgent credit needs. Almost, the entire customer journey is completely on digital channel, except a simple documentation, which will be completed by the branch. The loan is being offered to the existing current account holders through the Bank’s flagship application, Yono-business.

Entire product development process was driven by an in-house Analytics team using advanced Machine Learning technique i.e. Neural Network. 1400+ variables and features were used for customer identification. Another unique aspect is the use of statistical techniques to determine the consistency of cashflow of a customer. The digital trail of the selected customers also adds further strength to the identification & monitoring process.

Being a faceless credit decision, suitable risk mitigants & features were incorporated during the Model building process for reducing the probability of default. These features are based on the historical transaction behaviour of the customer, both within and outside the bank. A data driven Risk scoring matrix was developed for defining the loan eligibility of the customer on near real time basis. The turnaround time for the customers has also been substantially reduced. To protect against delinquencies, the accounts are centrally monitored using an advanced “Early Monitoring Mechanism”, with a detailed alert mechanism devised for branches. In the first 20 days of the launch of the product on 01.07.2020, Rs. 4.5 crores worth of loans have been disbursed.