Arguably no single data point determines your credit-worthiness, or your prospect as an entity worthy of a consumer loan or a business loan, as your credit score. TransUnion CIBIL is one of four credit bureaus in India that assess you for that. There are currently about 37 crore retail borrowers and about 1.3 crore commercial borrowers on the TransUnion CIBIL Consumer and Commercial bureau. That portfolio also gives it a vantage view of the banking and economic landscape. Excerpts from an interview with Harshala Chandorkar, Chief Operating Officer, Transunion CIBIL:
What is your sense of corporate lending trends, which appear to be recovering?
The NPA woes of the banking industry in the commercial lending space indicate that the mid-corporate and larger SME segments have taken the biggest hit. TransUnion CIBIL Commercial Data analysis highlights a significant chunk of accounts that are bad in one bank but not bad in another. The latest FIBAC report on Productivity in Indian Banking states that a significant part of latent NPAs could slip in the next few quarters. The revenue pool of mid and large corporates will probably stay subdued for the next 4-5 years due to stress in the portfolio.
The banking industry needs to invest in new credit models for commercial customers that rely on commercial credit information from TransUnion CIBIL and analytics to complement banks’ capabilities in credit assessment and detecting early warning signals.
What’s the outlook on retail credit? Consumer loans seem to be driving overall lending.
With the availability of credit information and progressive policies on financial inclusion, retail lending has grown profitably. Over the past five years, there has been an estimated 16 per cent annual growth in disbursement and over 30 per cent annual growth in bureau enquiries. At the same time NPAs and delinquencies on retail lending have been historically low.
The nature of retail credit is changing rapidly in India as the share of products in new accounts opened has evolved, with gold loans and consumer durables gaining significant volumes and accounting for almost 50 per cent of all new accounts opened. This growth has been accompanied by a significant drop in ticket sizes as financial institutions are becoming more and more willing to extend low-value loans. With certain other retail products, the ticket sizes have actually increased, prominent among them being personal loans — indicative of the increasing credit-willingness of the Indian borrower and a supply-side push — and home loans and auto/two-wheeler loans – indicative of the overall increase in the values of the underlying assets funded. In addition, the share of youth in retail credit is growing: millennials' share of accounts opened has increased to 40 per cent.
How do you see the bureau evolving in the near future?
The next stage of evolution of India’s credit information infrastructure will be the usage of credit information data, insights and solutions for further expanding access to credit, driving credit penetration and financial inclusion.
Demonetisation has paved the way for a cashless and digitised economy. Bureau solutions for instant verification and ‘decisioning’ are paving the path for driving digitised, quick, easy and affordable access to finance. Verification solution enables credit institutions to authenticate the identity of the consumer in real time at the point of application. As a result consumers are able to get the loan approval within minutes of applying. Yet another advantage is cost-effectiveness while establishing a consumer’s identity. Bringing down this cost can help banks and credit institutions make lending decisions quickly, at cheaper KYC costs, and thereby increase business growth and credit penetration.
The potential of alternative data usage for credit decisions is another significant domain. To expand and increase the breadth of information for making lending decisions even more comprehensive, we are in discussions with regulators to allow for contribution of ‘post-paid’ information on telecom customers. Several World Bank studies have indicated that inclusion of reporting of non-financial payment data (alternative data) proves extremely beneficial for making lending decisions, specifically for the segment that does not have access to credit. With access to affordable credit, new credit consumers are able to build assets. Those financially underserved consumers who have a positive payment records in non-financial obligations like telecom will have the ability to access affordable credit.
The extension of the credit information bureau to cover a larger population will enable a majority of Indians who are self-employed, or employed in the unorganised sector, to get a credit history and enhance their eligibility for credit from banks. Incorporation of telecom and electricity bill payment records into the credit information bureau can unleash this enormous potential to extend the penetration of banking in India. There is compelling business logic for utility and telecommunications firms to begin fully reporting customer payment data to credit bureaus.
But only a few banks use credit score to offer differentiated rates to customers.
Risk-based pricing in still at a nascent stage in our country. Both in the commercial as well as retail segments, pricing offers an opportunity to strengthen performance in the short term. Some progressive lenders have initiated a disciplined approach to risk-based pricing and this could improve banking profitability by 20-30 basis points. Further, at the bank level, banks need to deploy models to estimate customer price elasticity to introduce value-based pricing.
Risk-based pricing of loans helps both the lenders and borrowers alike: the lender can assess the risk value of a customer before deciding to offer a loan at a particular rate, while customers with a higher CIBIL score benefit by getting lower rates as compared to customers with a low scores. The benefits thus ensure that customers work towards keeping their scores and credit-worthiness high.
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