Yes Bank has launched a credit scorecard last year for lending to the micro, small and medium enterprises sector. The bank claims the scorecard has significantly reduced the credit appraisal time and the risk management processes. In an online interaction with FE, the bank’s chief risk officer Ashish Agarwal says the scorecard has increased the bank’s operational efficiency by 31% in lending.
Tell us about the credit scoring process for MSMEs?
The credit scoring process in Yes Bank is to enable our relationship managers (RMs) take quick, pragmatic credit decision on meeting the customer. The RM captures the MSME’s attributes in the detailed scorecard for a decision to give in-principle approval or decline or refer. Yes Bank has developed an in-house MSME scorecard for credit assessment, which evaluates the MSME comprehensively and the scorecard has been named among Nasscom’s Top 50 ‘Excellence in Analytics’ 2015. The bank has launched the Credit Scorecard for MSMEs in June 2014 for a credit limit up to R2 crore. The results have shown that the scorecard can effectively reduce decision time.
What are the key attributes tested in credit scoring?
The scorecard has attributes akin to key criteria used in credit appraisal, but at a reduced level. For example; the vintage of a business entity is grouped into band of <3 years, 3-5 years, 5-10 years and > 10 years. The scorecard is built on four categories, of financial risk, management risk, business risk and customer behaviour, and within them are 18 sub-parameters, the statistical output of which gives a score akin to credit grading. It is a hybrid scorecard, built using expert judgment and statistical techniques. The scorecard is built after analysing 38 months of tran-sactional history of the customers.
What are the key benefits of credit scoring?
The benefit of using credit scoring is that it can bring objectivity in the assessment process and in providing in-principle approvals for working capital facilities. The scoring criteria are broad-based to include all strata of MSMEs. This objective method of credit scoring benefit both borrowers and the bank. For the bank, scoring leads to process automation which cuts transaction cost and time taken for assessment and strengthens its risk management process. For the borrower, scoring leads to ease of access to credit and lower borrowing cost by reducing requirement of collaterals; more importantly, borrower knows upfront on whether their credit facility is approved. The credit scorecard has improved the operational efficiency of Yes Bank in lending to MSMEs by 31%. This has reduced overall transactional cost of the credit assessment process. The credit scorecard has also enabled the bank to segment portfolios in different risk grades, which has further strengthened the risk management processes.