Defaulters have a second chance of getting loans at Kotak Bank

Once a defaulter, always a defaulter. That's how the Indian banking system treats those who fail to pay up their loans. Kotak Mahindra Bank is looking to change that.

Kotak is doing psychometric tests to analyse whether the default was deliberate or due to financial weakness. This test would tell the bank whether the client has any intentions of defaulting again, irrespective of the financial strength.

While it intends to scale up this programme, it would initially be for its customers in the asset reconstruction division of the bank.

The private sector lender has tied up with Index Advisory, the firm which has built the psychometric test, to measure a borrower's credit profile.

"You cannot cast someone as defaulter for what happened a few years ago," Venkattu Srinivasan, group head ­ asset reconstruction division, Kotak Mahindra Bank told ET. "Nobody wants to touch them because of their past track record, but from our point of view, we feel that many of them would have reformed, so we want to give them a chance and see whether these people can be brought back to mainstream banking."

The bank will use these tests for individual borrowers who have defaulted on personal loans, credit cards and small-ticket loans. Once it starts showing positive results, the bank will scale it up to corporate and SME borrowers.

The key standard parameters tested are integrity as well as the intention to pay. Risk taking is also measured depending on the situation; these tests also measure the business acumen of the borrower.