NBFCs have embraced digitization and automation to make efficient credit decisions

Technology has found its place in all spheres of our lives. The last 2-3 years have been marked by rapid digitization in all sectors, changing the fundamentals of how businesses operate. Brands have had to adapt by providing a seamless omnichannel experience to customers. For a critical service industry like financial services, automation and digitization have helped service providers run their day-to-day operations smoothly. Lending institutions have embraced technology to increase business efficiency, deliver faster services, and improve the overall customer experience journey.

Non-Banking Financial Companies (NBFCs), in particular, have played a pivotal role in providing access to credit to a larger diaspora of the Indian community across geographies. The credit decision process, ie the internal procedure for investigating and verifying loan applications followed by NBFC when making decisions on credit risks, is essential to its business operations.

The role of the credit decision – Pre and post automation

The process of approving or denying credit based on predefined criteria determined by the organization is a credit decision. Risk assessment, however, can be a human-intensive process that can cost valuable man-hours. Previously, many financial institutions focused on using traditional methods such as skimming spreadsheets to analyze data, evaluating statistical data, and reviewing bundles of documents to arrive at lending decisions. keys. This carried the risk of increased human error and increased lead time for decision making.

New era NBFCs have embraced digital tools rather than traditional business processes. In fact, a recent report by the Reserve Bank of India (RBI) indicates that NBFCs account for 60% of loans sanctioned through digital platforms. A faster and more efficient process for loan disbursements and credit limits can significantly improve business efficiency. The increased use of data and analytics has helped create new opportunities for NBFCs to improve their credit decision process through technology integration.

Although the first quarter of 2020 was very challenging for several financial institutions, including NBFCs, from a business and cost perspective, many organizations began to embrace technology capabilities in various aspects of the business. Although this early period was marked by concerns over rising NPAs, the adoption of technology has helped companies refine their business decisions and serve their customers through an effective omnichannel strategy. Omnichannel presence across offline and online platforms ensured deeper market visibility by connecting with primary, secondary and tertiary audiences. Compared to early 2020, many services have been automated to provide a seamless customer experience.

Increased technological capabilities have allowed NBFCs to operate their business more profitably. It also helped streamline several internal processes:

  • In-depth customer profiling: The technology helps derive actionable insights from large amounts of data that can help predict behavior patterns. Such detailed customer segmentation allows institutions to make lending decisions faster. The latest technology brings insights beyond basic demographics. Automation has immensely accelerated dashboard analysis, which is imperative for assessing the risk threshold.
  • Target the right audience: With more accurate customer profiling, it is easier for NBFCs to create targeted campaigns for potential audiences, making the customer acquisition process more robust. Data can help NBFCs decide whether to enter specific target markets and increase investment in particular areas. The integration of artificial intelligence and machine learning can help NBFCs deliver a seamless omnichannel presence.
  • Easy calibration: The cloud-based credit decision-making engine speeds up the assessment process. Since the cloud allows storage of huge data and easy access to that data, financial lenders can also review historical customer-related data to make credit decisions at lightning-fast pace.
  • Keeping up: Automation and artificial intelligence allow financial institutions to save time with the ability to process more requests in a day. This allows NBFCs to more efficiently manage their business during peak hours. For example, student loan applications peak just before the fall season. With predictive analytics and other digital tools, they are better positioned to effectively manage this sudden surge in demand.
  • Improve commercial competence: Applications such as Business Rule Engine allow organizations to speed up the overall process by systematically selecting the right profiles. It implements various permutations and combinations according to 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 optimization: Many lending institutions have adopted robotic process automation (RPA) to maximize efficiency by streamlining processes, reducing costs and saving time. Many NBFCs have partnered with fintechs to deploy such software, enabling them to make faster lending decisions in a shorter timeframe by optimizing resources. This has helped NBFC sift through dozens of loan applications faster and reduces the risk of human error. It also helped to make the underwriting process more structured and precise.

With this growing reliance on technology and automation comes the responsibility to protect sensitive data. Therefore, digitally agile NBFCs invest large sums in adopting robust data security measures. The global adoption of technology has enabled them to reduce loan risk and provide a superior customer experience. This has helped them embrace insight-driven lending, paving the way for building a profitable and sustainable business through the adoption of profitable digital tools. Adopting technology into business processes is the most critical step for a critical 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 opinions expressed in this article are his own)