CXOToday has engaged in an exclusive interview with Ashish Nayyar, Co-Head, OakNorth India
- OakNorth has a mission to transform SME lending globally. How does credit intelligence play a pivotal role in achieving this mission?
Founded in September 2015 by entrepreneurs, Rishi Khosla and Joel Perlman, OakNorth’s mission is to empower the ‘Missing Middle’ – scale-up businesses that are the most significant contributors of economic and employment growth, yet still struggle to access the fast, flexible debt finance they need to grow. Historically, lengthy and manual processes and limited credit history have hindered lending to the missing middle. Credit intelligence is revolutionizing how banks assess and extend credit by employing a data-driven approach, providing a holistic view on borrowers based on historical data and forward-looking insights. This enables entrepreneurs get access to the capital they need to grow, create jobs, build communities, and power the economy.
- Could you share insights into the specific tools or technologies that OakNorth utilizes to gather and analyze data for credit intelligence purposes?
The only way to effectively evaluate commercial credit risk is by using multiple data sources, including alternative data that often has less lag than traditional sources. We leverage a prudent mix of data, statistical tools and deep credit insights and have developed 270+ unique forward-looking models that generate granular analysis and calculate each borrower’s future cash generation capability to service debt. By integrating internal customer data with broader and more comprehensive information gathered from external and unconventional data sources we are able to add depth to point-in-time analysis and monitoring.
- Could you share some insights into the key features of the ON Credit Intelligence Suite? How does it differ from traditional lending models and benefit both lenders and borrowers to make informed decisions?
The ON Credit Intelligence Suite is proven cloud software that is transforming commercial lending and enabling banks to lend smarter, lend faster, and lend more. It is made up of three core products – ON Scenario Analysis, ON Monitoring and ON Climate:
- ON Scenario Analysis enables lenders to identify risk up to 12 months in advance, as well as run multiple macro-economic scenarios across their entire commercial loan book, then change the parameters and run them again, instantly. ONci’s forward-looking industry forecasts provide lenders with a view of performance and risk migration across their portfolios, as well as down to individual borrower levels, enabling lenders to take preventive action so they can continue confidently lending and supporting borrowers through economic cycles.
- ON Monitoring enables banks to minimize credit losses by maintaining a proactive and ongoing underwriting view of their whole loan book, rather than just at origination and annual review. It also allows lenders to identify the right borrowers to review, at the right time, with the right intensity, reducing the time spent conducting reviews by 33%.
- ON Climate provides lenders with insights on climate risk in their commercial portfolio. The solution helps inform banks’ approach at every stage of the credit lifecycle: from origination and monitoring, to conducting portfolio-level scenario analysis, responding to investor, board, and regulatory requests, as well as setting credit strategy. It also allows banks to explore the financial strength of borrowers as an important consideration in determining their ability to withstand the transition to a greener economy.
- What do you see as the future of commercial lending, and how does OakNorth plan to continue evolving in this ever-changing industry?
The future of commercial lending will be marked by increased digitization, data-driven decision-making, sustainability considerations, and a continued shift toward customer-centricity. OakNorth has always been a step ahead in understanding customers’ concerns and staying abreast with regulatory requirements. We have already implemented dynamic risk management models, which commercial lenders are planning to shift towards. Another example is our ON Climate solution that is enabling some leading US lenders to address the growing regulatory focus to evaluate, measure, and report on climate-related risks and financed emissions. OakNorth’s climate scenarios stress-test portfolios over various timeframes and allows customers to annually assess transition risks until 2050.
- How do you find the regulatory environment in India?
Regulatory environment in India is conducive for fintech industry to grow and thrive. The government has actively promoted UPI-based transactions, which have transformed the way Indians transact and paved the way for a cashless economy. In addition, the Reserve Bank of India has introduced the Regulatory Sandbox Framework, which permits fintech firms to test their innovations with a restricted number of customers before scaling up their operations. Government initiatives such as Open Credit Enablement Network and Account Aggregator framework are also expected to support digital lending.
- OakNorth’s presence in India has been significant. Can you elaborate on the role of the Indian workforce in OakNorth’s global operations and the development of credit intelligence solutions?
India is one of the world leaders when it comes to financial innovation and its fintech landscape continues to expand, whilst its reputation as a thought leader and talent provider continues to strengthen globally. While we do not lend in India, the country has been pivotal to OakNorth’s global operations since its establishment in 2015. With over 500 colleagues, our team in India consists of credit analysts, engineers, data scientists, transaction professionals and other operational experts, all focused on advancing the value we bring to our customers. Looking ahead, India will continue to play a vital role in our success story, with the team there being paramount to the development and evolution of OakNorth’s businesses.
- What are the major challenges that you face while lending to SMEs?
One of the challenges we face when collaborating with SMEs is the disparity between their company forecasts and our expectations. This discrepancy arises from our granular method of predicting cash generation through a multitude of sources, whereas borrowers rely on their historical experiences and conventional data for their forecasts. However, with this approach we continue to confidently lend through cycle and helping to drive positive outcomes for our customers.
- Looking ahead, what do you envision as the future of credit intelligence in the financial industry, and how is OakNorth planning to continue leading in this space?
Given the many benefits that credit intelligence provides the banking sub-sector of the wider financial industry – e.g. a more comprehensive picture of individual borrower credit situation, enabling them to lend quickly and wisely to more businesses and driving better outcomes for them – we envision it to have a hugely exciting future.
When we combine robust data and analytics with experienced decision-makers, we’re combining our technological know-how and the talent of our people to lend faster, smarter and more. Ensuring we continue and build-upon this approach is how we plan on leading in this space moving forward.
