NBFCs have embraced digitalisation and automation to make efficient credit decisions

Technology has found a place in every sphere of our lives. The last 2-3 years have witnessed rapid digitalisation across sectors altering the fundamentals of how businesses operate. Brands have had to adapt by offering a seamless omnichannel experience to customers. For an essential services sector such as financial services, automation and digitisation helped service providers in running day-to-day operations smoothly. Lending institutions adopted technology to help increase business efficiencies, provide faster services, and improve the overall customer experience journey.

Non-Banking Financial Companies (NBFCs), in particular, have been pivotal in allowing access to credit for a larger diaspora of the Indian community across geographies. The credit decisioning process, i.e., the internal procedure of investigating and verifying the loan applications followed by NBFCs while making decisions on credit risks, is key to its business operations.

The role of credit decisioning – Pre and post automation

The process of approving or declining the credit based on preset criteria determined by the organisation is credit decisioning. The risk assessment, however, can be a human-intensive process that may cost precious person-hours. Earlier, many financial institutions focused on using traditional methods such as skimming spreadsheets to analyse data, assessing statistical data and going through bundles of documents to arrive at key lending decisions. This carried the risk of increased human error and increased turnaround time for decision-making.

New-age NBFCs embraced digital tools over the brick-and-mortar business processes. In fact, a recent report by the Reserve Bank of India (RBI) states that NBFCs account for 60% of loans sanctioned through digital platforms. A faster, more efficient process for loan disbursals and credit limits can significantly improve business efficiencies. Increased use of data and analytics has helped create fresh opportunities for NBFCs to improve their credit decisioning process through technology integration.

Though the first quarter of 2020 was significantly challenging for several financial institutions including NBFCs, from a business and cost perspective, a lot of organisations began adopting technological capabilities in various aspects of the business. Though this early period was marked by worries of rising NPAs, the adoption of technology helped firms fine-tune their business decisions and serve customers through an effective omnichannel strategy. The omnichannel presence across offline and online platforms ensured deeper market visibility by connecting with primary, secondary and tertiary audiences. In comparison to early 2020, many services have been automated to offer a seamless customer experience.

Increased technological capabilities have enabled NBFCs to operate their business in a more cost-efficient manner. It has also helped smoothen multiple internal processes:

• In-depth customer profiling: Technology helps derive actionable insights from large troves of data which can help predict behaviour patterns. Such detailed customer segmenting allows institutions to make lending decisions faster. The latest technology brings insights beyond the basic demographics. The automation has immensely fastened the scorecard analysis, which is imperative to evaluate the risk threshold.
• Targeting the right audience: With a more accurate customer profiling, it is easier for NBFCs to create targeted campaigns for prospective audiences making the customer acquisition process more robust. Data can help NBFCs decide on entering specific target markets and increase investments in particular areas. The incorporation of artificial intelligence and machine learning can help NBFCs offer a seamless omnichannel presence.
• Easy Calibration: Cloud-based credit decision-making engine fastens the evaluation process. Since Cloud enables the storage of humungous data and easy access to this data, the financial lenders can also examine historical data related to the client to make credit decisions at a lightning-fast pace.
• Keeping up the momentum: Automation and artificial intelligence enable financial institutions to save time with the ability to take up more enquiries in a day. This makes it easier for NBFCs to handle business more efficiently during peak times. For instance, education loan enquiries witness a spike just before the fall season. Through predictive analysis and other digital tools, they are better poised to effectively handle this sudden increase in demand.
• Enhancing business proficiency: Application such as Business Rule Engine enables organisations to quicken the overall process by selecting the right profiles in a systematic manner. It implements various permutations and combinations as per the set guidelines to identify the right customer profiles and then forwards them for further processes. This saves time and reduces manual intervention making it much more efficient and accurate.
• Resource optimisation: Many lending institutions have adopted Robotic Process Automation (RPA) to maximise efficiency by streamlining processes, reducing costs and saving time. Many NBFCs have partnered with fintech’s to deploy such software, enabling them to make faster lending decisions in a shorter period by optimising resources. This has helped NBFCs scan through scores of loan applications quicker and reduced the chances of human error. It has also helped make the underwriting process more structured and accurate.

This increasing dependence on technology and automation brings with it the responsibility of protecting sensitive data. Hence, digitally agile NBFCs invest significant amounts in adopting robust data security measures. The overall adoption of technology has enabled them to reduce lending risk and provide a superior customer experience. It has helped them adopt insight-driven lending, paving the way for building a sustained profitable enterprise through adopting cost-efficient digital tools. Adopting technology across business processes is the most crucial step for an essential service provider such as an NBFC.

(The author is Mr. Samir Mohanty – Chief Operating Officer and Chief Technology Officer at Avanse Financial Services and the views expressed in this article are his own)