Banks can check 3-yr history of borrowers

Mumbai: Banks are now armed with more information than ever before on

cardholders

. They can now tell which cardholder is likely to default, and in which defaulter’s case it is worthwhile to pursue and recover funds. A next-generation

algorithm

enables banks to scour customer transactions for the past three years across a multitude of banks and financial institutions and figure out which customers are undergoing a downturn as far as finances are concerned, and who are improving. This algorithm also helps to identify which

defaulters

are repaying other lenders and are therefore worthwhile pursuing.

Credit information bureau

TransUnion-CIBIL

recently showed banks its

CreditVision

tool to help them in lending and recovery. “Several banks are testing the solution by doing a retro analysis before they introduce it in their credit appraisal system,” said Harshala Chandorkar, chief operating officer, TU-CIBIL. She added that banks are expected to go live in the next couple of months.

While lenders have been relying on analytics to provide automated loans, they had only the customer’s history with the bank to fall back on. They can now use the software to provide automated loans to even non-customers.

Until now, when a bank received an application for a loan or credit card, they would use the individual’s

credit score

for taking a decision. Individuals with a credit score of above 750 are considered as good credit risks. However, the score is a static piece of information. “What the software does is provide additional variables to financial institutions to come up with more precise decisions. It looks at patterns of payments, exposures, and trends at how a customer is making payments,” said Chandorkar.

However, the selling point for TU-CIBIL is not just the identification of potential defaulters. The credit bureau is telling banks that they can lend an additional Rs 69,000 crore to more than 15 lakh borrowers. This is based on an analysis of existing loan applicants who have been prompt in repayment or even prepaying their loans. “It will enable lenders take sharper decisions because it is now giving more granular insights and information. Our analysis shows that there will be additional credit which will be made to customers, who earlier probably got rejected,” she said.

While until now borrowers were distinguished between regular payers and delinquents, the new solution will separate ‘credit revolvers’, ‘transactors’ and outstanding ‘builders’. According to Chandorkar there are close to 15 lakh customers who are now entitled to larger loans than what they have been sanctioned.

According to Rakesh Bhatt, chief operating officer,

Bajaj Finance

, the new solution will help map the credit evolution of the consumer and would have use case in underwriting and exposure management strategies. “By using CreditVision, we hope to penetrate a much larger customer base, thus significantly increasing our retail outreach,” said Bhatt.