Credit has long been a catalyst for financial growth, enabling businesses to scale and economies to thrive. In India’s evolving growth story, its importance remains undeniable. With technological advancements and the emergence of new borrower segmentssuch as blue-collar workers and MSMEs, the credit landscape is significantly transforming. These shifts are reshaping key aspects of lending, including credit policy, debt collection, and underwriting.
In recent years, the credit market has shown steady growth, with bank credit rising by 12.5% in FY25. While this is a positive sign, sustaining such momentum requires robust credit policies that strike the right balance between expansion and prudent risk management.
A well-designed credit policy enables financial institutions to serve a diverse borrower base without compromising credit quality. As India’s workforce evolves with blue-collar work gaining traction and MSMEs continuing as major employers, traditional one-size-fits-all models are no longer sufficient. Conventional credit frameworks may not fully reflect the financial behaviour of these segments. Institutions must tap into alternative data sources such as utility bills, rent payments, and GST invoices (for MSMEs) to better assess creditworthiness. This approach can expand credit access and strengthen financial inclusion. Initiatives like the RBI’s Unified Lending Interface (ULI) aim to simplify credit appraisal, especially for small and rural borrowers, enhancing access while potentially lowering delinquency rates.
As borrower profiles evolve, debt recovery strategies must adapt accordingly. Financial institutions should focus on ethical, customer-centric collection practices, emphasising clear communication and transparency.
The growing adoption of AI and Machine Learning has accelerated the use of digital lending platforms, with digital loans projected to account for 5% of retail loans by FY28. Enhanced features in digital payments have further driven consumer engagement. To meet evolving expectations, financial institutions increasingly leverage technologies like artificial intelligence, blockchain, and big data to optimise costs, enhance service delivery, and improve efficiencies. In response to recent economic shifts, we’ve also redefined our underwriting practices with data-driven insights to ensure smarter risk management. Advanced analytics, alternative data sources, and machine learning models help assess creditworthiness beyond traditional parameters.
Governments and regulators are fostering innovation by creating “sandboxes” that allow companies to test new technologies and business models in a controlled environment. As technology continues to evolve, financial institutions must remain agile, adopting new tools to strengthen risk management and cybersecurity. By integrating AI and machine learning into underwriting, institutions can analyse large datasets to identify patterns, predict credit behavior, and enhance decision-making.
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Financial institutions like Godrej Capital are building robust risk management frameworks to ensure that new technologies comply with regulations, protect data privacy, and mitigate biases. As the lending landscape evolves, institutions must embrace technological advancements while maintaining a clear focus on ethical practices. To remain competitive and sustainable, they must refine their credit policies, meet the demands of new borrower segments, and balance innovation with responsible growth that benefits both businesses and consumers alike. After all, it’s all about responsible lending to prudent borrowers.
Views expressed by: Shalinee Mimani, CRO of Godrej Capital
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