Tackling corruption: Banks to use algorithm to decide your loan application

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Updated: February 22, 2019 10:16:10 PM

The government wants to replicate the success witnessed in digital payment services in the delivery of credit services.

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Saddled with rising bad loans, the public sector banks are going to use technology in a big way to reduce the discretion of bank officers and eliminate the scope for curruption in lending, said Sunil Mehta, CMD of Punjab National Bank.

Addressing a seminar on the future of banking sector organised by EGROW foundation in New Delhi, Mehta said the country has made immense progress in terms of use of latest technologies in payment services and the next level will be to leverage these technologies in the delivery credit services.

“There is a debate whether banks should remain the bank or convert into tech companies. It is happening in the payment space. It could move to credit delivery where the decisions will be made by an algorithm,” said Sunil Mehta, who heads the second largest public sector bank in the country that was at the centre of controversy following the unearthing of huge loan scam of over Rs 5,000 crore involving diamond baron Nirav Modi and Mehul Choksi of Gitanjali Gems who later fled the country.

Such scams forced the banks to look for innovative use of technologies to assess the credit worthiness of borrowers and minimise the scope of discretion in the lending decisions.

Demonetisation led to explosion of digital payments

India has already seen the explosion of digital payment services following the Prime Minister Narendra Modi’s shock decision to ban high value currency notes in November 2016 that had sucked up 85% currency in circulation in one go.

It forced the companies and customers to urgently shift to digital and card payments as the common people faced extreme hardships in getting the currency for daily use.

According to information given by RBI and National Payment Corporation of India, the number of UPI transactions have gone up from just 2 lakh in November 2016 to over 48 crore transactions in November 2018. Similarly, the value of UPI transactions have gone up from Rs 100 crore to Rs 75,000 crore during the same period.

Encouraged by the success of digital payment services, the government is planning to use fintech and analytics in a big way to assess the credit worthiness of borrowers.

“The country has nearly 1.25 billion bank accounts, it also has similar number of Aadhaar and mobile numbers, so this trinity of mobile number, Aadhaar and bank account has all the information,” said Rajiv Kumar, secretary of department of financial services, adding that latest tools such analytics can be used to assess the credit worthiness of borrowers that will eliminate the scope of discretion and corruption.

Prime Minister Narendra Modi and top ministers in his government have often blamed the alleged undue influence during the tenure of previous UPA governments for unprecedented rise in bad loans, calling it phone banking or practice of giving loans after receiving calls from powerful individuals.

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It believes that integration of information available with different agencies and banks and use of fintech and analytics can help minimise the discretion of bank officers to cut the corruption in banking sector.

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