How do you use data and analytics for lending decisions?
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NewsTranscript
00:00 How actually are you using data and analytics when you are kind of choosing between a person
00:14 who has to be lent to and somebody who has to be declined?
00:17 This is one aspect I think we are lacking here in terms of I would say a robust decisioning
00:25 system.
00:26 The entire process as Manish mentioned, I would like to say something.
00:30 I have never been to the bank regarding my SBA account.
00:33 I am always doing it online whether it is drawing money or any other transactions.
00:38 But as someone said, for a loan you still need to stand in front of somebody from the
00:43 bank.
00:44 Now, this brings in cost.
00:46 I am again referring to the automotive sector.
00:49 We have seen some large dealerships where you have seven people from different banks
00:53 sitting there.
00:54 Now somebody has to pay this which is the customer.
00:57 So one of the things which again we have been looking for and speaking to banks is have
01:03 some sort of a decisioning system.
01:06 It could be, I know there are various parameters but with the technology today you can definitely
01:12 arrive at at least as I mentioned earlier, some sort of a decision which is conditional
01:19 till you actually get your papers in, till somebody scrutinizes it and maybe you go the
01:26 traditional way.
01:27 But I think as we go along the traditional approach can be minimized in terms of certain
01:34 segments or certain profiles and lead to something which is completely I would say based on an
01:42 algorithmic decisioning system.
01:44 I think we should finally get there which is what is available all over the world.
01:48 I would say there are three things to keep in mind.
01:51 Number one, borrowing history.
01:52 Number two, relationship with you on other products.
01:55 And number three, an answer for people where there is neither of number one and two.
02:00 We start the lending process right in the very beginning where the product planning
02:06 is happening and it is not that risk team is not involved in the product planning stage
02:12 and we look at how the product is being designed, how is it going to be sourced, which channel
02:19 is it going to be sourced because that is where what I said earlier, the value proposition
02:24 comes in and we need to attract the right kind of customers.
02:29 One of the earlier sessions people were talking about carpet bombing.
02:32 If we end up doing carpet bombing you will obviously end up getting a lot of customers
02:36 who are not interested in your product and will take the money and walk away.
02:41 But if you are focused on what we are selling then a lot of good customers is going to come
02:47 in through the door.
02:48 So that is the key element that I have learned as a risk manager.
02:52 At one point of time I used to think that the product design was a responsibility of
02:57 the product team and risk managers should not be involved in that but that is a lesson
03:00 I learned the hard way.
03:01 That is one.
03:02 Secondly is of course as I said the repayment capability of the customer.
03:07 So once you have matched the need of the customer with the profile of the customer you have
03:10 attracted the customer in, you have to make sure that the customer has a capability of
03:14 paying you back.
03:16 So the capability will be determined based on the leverage which the customer already
03:21 has and you rely on the bureau data to know how much leverage the customer already has
03:26 on the bureau and in the market.
03:29 And the third is of course the behaviour of the customer, the repayment behaviour.
03:35 And Manish was absolutely right that the behavioural information is the strongest information that
03:40 you can have that if a customer has defaulted once, is possibly going to default once again.
03:44 So these are the three key elements that we put into our algorithm and we do try to go
03:49 as digital as possible and straight through as possible to code all of this into our systems
03:55 and make sure that the decision is as seamless and straight through as possible.
04:03 The direction is right and time will test and prove that what they are doing, all the
04:09 banks and all the other stakeholders are doing actually works.
04:14 It's disruptive at this stage, it's called disruptive, at some stage it will become
04:17 constructive and it will be called as something that was always something the industry needed
04:21 and it's absolutely the right direction.
04:23 [Music]