‘Banks must leverage technology while making lending decisions’

Banks must depend more on technology to screen borrowers and to monitor them, a top Finance Ministry official has said.

This is not to substitute the “soft information” (like character of borrower) that a loan officer gathers, but to complement and, thereby, empower the loan officer to be able to screen and monitor the borrower better, Krishnamurthy Subramanian, Chief Economic Advisor in the Finance Ministry, said at a NITI Aayog banking conference in the Capital.

He highlighted that banks, till date, have viewed soft and hard information as substitutes, and not necessarily as complements.

“Even factors like ‘willingness to pay’ can now be factored in the technology-enabled decision-making process. In general, our banks have not been leveraging the power of technology as much as they can in enhancing the quality of lending,” he said.

Citing the developments made by fintechs in the lending space, Subramanian said a compelling case now exists for banks to significantly up their use of technology to strengthen the quality of their lending.

Mala fide intent

Highlighting that the business of banking intrinsically involves risks, Krishnamurthy underscored the need for “fine nuance” at the vigilance functions of banks. Every time a vigilance function equates bad judgement to be mala fide intent, it increases the risk aversion of bank officials. “Irrational exuberance does happen, and we have to be careful in understanding the difference between irrational exuberance and mala fide intent,” he said.

It is extremely important that public sector banks focus on governance so that they are not faced with speed-breaker situations, he added.

Srivats.kr@thehindu.co.in

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