Data-driven risk assessment: Ensuring responsible lending In NBFCS


Data analytics has become a cornerstone of risk management for NBFCs, particularly in customer selection. It enables lenders to make well-informed decisions by analysing a wide array of data, including financial transactions data and the customers’ repayment histories, shared Arun Nayyar, Managing Director & Chief Executive Officer, NeoGrowth in an exclusive interview with Srajan Agarwal of Elets News Network (ENN).

In today’s digital age, could you elaborate on how digitisation and streamlined processes have transformed the landscape for NBFCs and, in turn, enhanced the overall customer experience in the financial sector?

India has a sophisticated digital ecosystem and digitally enabled NBFCs are leveraging the Digital Public Infrastructure and its various components to create innovative digital lending offerings and elevate customer experiences. Through digitisation, NBFCs are delivering a personalised and frictionless journey to borrowers, from fetching of customers’ financial details for automated loan applications to analytics-based risk assessment and loan approvals to quick disbursements. The availability of financial data of the customer through the consent-based Account Aggregator to leveraging the digital financial transactions in a cash flow-based lending model, digital NBFCs are creating an inclusive credit ecosystem, especially for the MSME sector, to bridge the existing credit gap in the country.

Borrower profiles are evolving and so are their credit demands. MSMEs, for example, are digitally savvy now and as per a recent NeoGrowth survey, 60 per cent planned to ramp up investments in digital tools. This is encouraging for digital NBFCs as they strengthen their technology stack to make digital lending second nature to customers.

At NeoGrowth, we believe in the power of data. Right from enhancing the customer experience journey to introducing new products, the availability and intelligent use of customer data has enabled us to serve our customers more efficiently. For example: With digital KYC in place, we have been able to access authentic KYC and banking data quickly and directly from the source, resulting in a quicker application processing time. This has resulted in an enriched customer experience and improved resource productivity. Our customer service app that has been built in-house, easy repayment options for customers, and access to the self help options regarding information on the loan account have made customers’ lives easy. Our platform’s user-friendly journeys have helped us improve our customer experience, increase customer value, and make better decisions across our key business areas.

Data analytics plays a pivotal role in managing underwriting risks for NBFCs. Could you share insights into how NBFCs are using data analytics to assess and mitigate risks, ultimately ensuring sustainable and responsible lending practices?

Data analytics has become a cornerstone of risk management for NBFCs, particularly in customer selection. It enables lenders to make well-informed decisions by analysing a wide array of data, including financial transactions data and the customers’ repayment histories. In recent years, an abundance of data has become easily accessible through tools like Account Aggregator, KYC, and GST data integrations. However, the effective use of this data relies on Artificial Intelligence(AI)/ Machine Learning (ML) models. At NeoGrowth, this approach has yielded remarkable success, with 94 per cent of our retail loans processed digitally, entirely paperless. Moreover, data analytics and AI/ML models enable us to categorise borrowers based on their risk profiles, tailoring loan offerings to individual needs. This inclusive approach allows us to extend credit to underserved and unserved retailers while reducing the risk of defaults and fraud.

Continuous monitoring of loans and portfolio through data analytics is paramount in today’s dynamic financial landscape. Early detection of warning signs ensures that corrective measures can be swiftly implemented, ultimately fortifying the overall health of our lending portfolio.

Digital payments have become increasingly prevalent. How do you perceive the role of digital payments in strengthening the lending processes for Micro, Small, and Medium Enterprises (MSMEs)?

From making it easier and faster for customers to pay for goods and services, to providing new-age digital lenders with the data they need to assess the health of a business, digital payments hold immense potential for MSME lending. Our recent NeoInsights study found that 7 out of 10 retailers believe that more than 50 per cent of their sales will be through UPI in the next few years and more than 40 per cent of retailers prefer using digital payments for loan repayments. Through digital payment data, we can assess the cash flows of a business, take seasonality into account, and make credit go/ no go decisions. Digital transactions offer verified, untouched, and untampered financial data on a borrower. It’s among the most reliable data sources to assess risk worthiness of a customer. With UPI transaction volumes crossing the 10 billion mark for the second consecutive month, the scope of digital payments in the MSME lending space is unprecedented. We at NeoGrowth look at a borrower’s digital payments data to understand their business and run data, science-based risk models.

With the digitisation of lending, NBFCs are reaching a wider audience of MSMEs. Could you shed light on how this digital transformation has helped NBFCs improve access to credit for a multitude of small and medium-sized businesses, fostering economic growth and entrepreneurship?

Digital NBFCs are able to overcome challenges in assessing customer’s creditworthiness through innovative models. NeoGrowth with its end-to-end digital loan journey has made availing a business loan faster, hassle-free, and convenient for MSMEs who have immediate business needs and need funds for the same. Having sufficient funds at the right time is crucial for the overall economic development and growth of the MSME sector. Not only can they benefit from bulk discounts offered by vendors but even facilitate job creation as they grow and expand their business.

The Digital Public Infrastructure (DPI) is gaining momentum as a critical enabler for various sectors, including finance. Can you elucidate the role of DPI in fast-tracking loans to small businesses, and how it’s contributing to financial inclusion and economic development?

The Digital Public Infrastructure has the potential to foster innovation at scale and build an ecosystem that is sustainable, progressive, and digital. NeoGrowth has effectively utilised the key elements of the Digital Public Infrastructure (DPI) such as the Account Aggregator (AA) network, e-KYC, digilocker, Aadhaar, and digital payments to provide seamless credit to MSMEs. This has enabled us to expand our range of products, reach more customers, and fulfil the funding requirements of MSMEs. We will continue to strengthen our digital capabilities, resilient digital paymentsbased lending model, and robust risk and governance mechanisms to serve India’s MSMEs.

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