What changes do you expect in retail lending once the lockdown opens?
Digital transformation in the banking sector has been underway for quite some time now. Some events, however, accelerate this transformation. The lockdown due to the covid-19 pandemic is one such event. Consumers, too, need to adapt to digital transactions, be it regular banking or applying for loans.
But somehow, it’s easier to establish trust when people are in front of you. If the transactions are going to be entirely digital, then there’s a question of creating the right trust. That is where credit information companies come in. The entire process going digital means, there will be a heavy flow of information to enable these transactions. The technology we use ensures that every person is accurately presented to the credit institutions, which helps in on-boarding and underwriting customers.
Will borrowers see tough times ahead as lenders tighten rules?
With the pandemic raging across the globe, economic growth will undoubtedly be slower. It will take some time to get back to the usual growth rate. Banks, therefore, will be cautious. But it’s a temporary reaction. Lenders will have to manage their balance sheet growth and have to get back to sourcing the volumes they used to before the pandemic. If they don’t do that, the portfolios will shrink. If this happens, delinquencies will look higher.
Some customers who didn’t opt for a moratorium may have defaulted. How is the industry looking at such cases?
Customers who applied for the moratorium didn’t pay. Some didn’t ask for the moratorium but defaulted. I think, most banks are taking a stand that those customers who didn’t pay are deemed to have applied for the moratorium.
Do credit score parameters keep evolving?
Yes. But the evolution is more to do with access to new data and better technology. The new score we launched recently is nuanced and works on credit data of 36 months. Maybe five years ago, we didn’t have access to technology, which would handle so much volume of data and computation. Then there could be more information available when the government allows access to more data. For example, GST data, which can help self-employed consumers.
What changes have you made to credit score computation?
This shift is a 2020 story. The new scoring mechanism uses more variables and is more comprehensive. Most of our 4,000 members (banks and NBFCs) have moved to the new CIBIL score, called the CreditVision score. A handful of lenders are yet to migrate. There are small technological issues, which would be taken care of soon.
The underlying information of consumers has changed in the last couple of years. There has been a growth in consumption-related loans. In India, consumption loan, credit cards and personal loans have grown significantly. As the trend has changed, we launched the latest version of the score, which is beneficial for lenders as well as for consumers. The 36 months of history gives much more information to the lender.
What components have been added to the data set?
We have not asked for more information. We now have sharper algorithms that give a more comprehensive picture because we are going into 36 months of history and looking at trended variables as opposed to two years earlier.
For example, enquiries reflect how credit hungry a person is and how much the borrower is trying to increase his debt burden. Looking at enquiries over three years can reveal more about behaviour. The same holds for the credit mix—secured and unsecured loans. There are many such things that can be picked when we consider data over a longer period. Some customers have only auto and home loans for most of the three years. But, of late, you see that the number of unsecured loans has suddenly shot up. It reveals about the present situation of the person. It’s more about using the trended data and looking for consistency or the lack of it.
Why is it that more people now have a lower credit score now compared to January?
It is due to the change in the product itself. It is not a reflection of any deterioration in the last three months. The changes have been well-explained to members, and they have received it well. Members have accordingly recalibrated their policies. Before banks implement the credit score in their policy, they evaluate the NPAs for different score buckets to decide what should be the minimum score at which they will lend and how much extra interest rate they will charge as the risk increases. They do a lot of analysis with us before they implement the score in their policies.
Many complain that old disputes impact their scores. Can you explain how this works?
As a credit information company, we do not alter any data. If a consumer raises a dispute, we help them. Customers can go online; they can mark the particular tradeline (the disputed account). The information goes to the lender to confirm the status. We can make the changes only if a lender authorizes us. The customer will have to approach the lender to get the dispute resolved. We process the information we receive.