₹ ₹ Banks’ Daredevilry: Loans Without Credit Scores
Kotak, IDFC Bank turn to digital algo to pick up good borrowers
Mumbai: Kotak Mahindra Bank and IDFC Bank have forayed into a space where most banks hitherto feared to tread — lending to people without credit scores. These banks are now turning to digital credit algorithms to identify “good” borrowers who do not have a credit score.
“Out of all the opportunities that have emerged post demonetisation, lending is the biggest opportunity, and just because customers don’t have a credit history that doesn’t mean they are not the right customers,” said Deepak Sharma, chief digital officer at Kotak Mahindra Bank. “We are looking at new ways of developing credit scoring model which is not based on the credit bureau scores, and see how these alternate lending models could be built,” he said.
The bank is looking at both retail and MSME (micro, small and medium enterprises) customers who could qualify under this new scoring model. Sharma said Kotak Mahindra Bank will look at parameters like cash flow, turnover, collections and nature of business be- fore approving first time businesses for loans.
“We want to associate with good credit quality because at the end of the day we don’t want to risk the bank’s asset quality,” he said. “It is important to see how additional data can be baked in our credit appraisal process.”
In an industry first, IDFC Bank will be offering instant personal loan approvals to new-to-credit and new-to-bank customers. The bank has tied up with online loan aggregator IndiaLends to lend money to borrowers with no established credit history. Under the tieup, IndiaLends will share details of credit needs of all first-time borrowers with IDFC Bank.
“We are trying to address needs
of customers who do not have a credit history and this base is much bigger than people who avail credit,” said Biju Pillai, head, personal lending at IDFC Bank. “It’s not that the new to credit people don’t get a loan but the time period is much longer. Our product offers real time approval for personal loan to first-time borrowers,” he said.
Under this offering customers will be able to avail loans up to ₹ 2 lakh. Initially, the bank targets salaried class. The product will be later extended to the self-employed category. Pillai said there was a huge gap between people who want credit and who get credit, out of 100 people who apply for loan, on an average, only five manage to get it.