₹ ₹ Banks’ Dare­dev­ilry: Loans With­out Credit Scores

Ko­tak, IDFC Bank turn to dig­i­tal algo to pick up good bor­row­ers

The Economic Times - - Finance & Commodities - Saloni.Shukla @times­group.com

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.

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