The credit information bureaus are operating with specified legal framework and have well-defined work.
Loan officers at Kotak Mahindra Bank are spending more time in reading your Facebook posts, SMSes and payment data available in your mobile phone to decide whether to sanction a loan for you to buy a home or car, rather than relying solely on whether you repaid your credit card dues two decades ago. As banks sharpen their internal assessment of risk before lending, they are investing in analytics, data gathering and use of social media more now than on conventional tools like score from credit information bureaus, which capture borrowing behaviour.
It is not just Kotak but others too, such as HDFC Bank, Axis Bank and even state-owned banks like State Bank of India, which use social media behaviour not only for loan sanctions but also for tailoring sales pitch for products. They track data captured in Google Maps, payment to Uber cabs, or even your electricity bill payment records.
"Credit bureaus are increasingly becoming irrelevant," says Dipak Gupta, joint managing director at Kotak Mahindra Bank. "Traditionally, we have had 40% weightage to bureaus, but because there is so much data available that weightage may be 20%." In March, Kotak launched a digital savings bank account, which allows customers to save and pay using their mobile phones. Gupta said the information that the bank got through mobile phones is very useful to make credit decisions and also to prevent frauds.
"When you download my app, I take permission from you to look at your SMSes and GPS. I know what all payments you delayed, what all bills you paid, when and how much you paid, what all bank notices you got and how many you have replied to. From your GPS, I know what is your place of residence and what is your place of work, how long you have been at your residence, how long you have been at work, how much do you travel, all in 30 seconds. I can decide whether to give you a loan or not."
BUREAUS TO RESCUE
In 2007, when Credit Information Bureau (India) (CIBIL) launched its first generic risk scoring model for banks and financial institutions, it was considered a landmark in Indian banking, which till then relied on information provided by the borrower to judge credit worthiness. Those were the days of over 30% credit growth, free credit cards and home loans as the economic boom opened up a new set of customers for bank credit, but there was little knowledge about the borrower. But in the absence of reliable credit data, many banks burnt their fingers as bad loans soured for lenders ranging from ICICI Bank, to Barclays, Citi, Standard Chartered and State Bank of India. As CIBIL and later Experian, Equifax and CRIF High Mark built their data base, banks became more confident of lending to customers while ensuring that they kept their NPAs low. Cut to 2017, the era of mobile banking. Lenders equipped with information and insights by accessing customers' mobile phones are no longer dependent only on credit bureaus to judge credit worthiness.
EAT OUT, NOT PAY UP
Lenders like Kotak and HDFC Bank are investing heavily in new forms of analysis using artificial intelligence, social media trends and mobile data.
The explosion of data brings with it a fresh set of challenges too. There are groups advocating privacy, which may limit the ability of banks to use mobile data to the fullest. It is at a stage where there are early benefits, but it is yet to completely takeover the functions of credit bureaus.
"On social media, banks are at a stage where it is adding value but this co-relating will have a long way to go in yes and no situations," says Arvind Kapil, group head - unsecured, home and mortgage loans at HDFC Bank. "We are working on social media but you also have to bear in mind that privacy laws will get strengthened. We are also learning how to grow with these insights that are coming in. But at this stage, you have to invest in it."The regulator is keeping a close watch and they can't afford to be adventurous which could tie them down and limit their usefulness in future.
"Bureau is an important, but not the deciding factor," says HDFC Bank's Kapil.
