Under scrutiny for their bad loan situation, India’s commercial banks are beginning to turn to big data analytics and online monitoring to keep an eye on large loans in their portfolio.
So far, banks have been using these tools, with relative success, to track retail loans — loans extended to individuals. It is perhaps surprising that similar measures have not been applied on big corporate loans, despite recent instances of companies defaulting on big loans.
“Use of technology for a small value transaction and handling home loans is more comfortable. The major problem comes in capturing the cash flow (of corporates)… Essentially, with technology a lot of data is coming online and cash flows are getting captured,” Rajnish Kumar, managing director of State Bank of India, explained.
Gross non-performing assets (NPAs) — bad loans or loans that do not yield returns — of public sector banks have surged from 5.43% of total loans in 2014-15, to 9.32% in 2015-16. The latest Financial Stability Report of the RBI said this ratio may go up to 10.1% by March 2017.
According to Zarin Daruwala, CEO of foreign lender Standard Chartered Bank, “A lot of banks are using analytics on the retail side but are not using the same kind of analytics on the corporate side. For example, on simple items such as bank statements, if you have a 30-bank consortium, are we using technology to figure out what’s happening?”
Last month, ICICI Bank set up a credit monitoring group under consultant McKinsey to use data and analytics to spot early warning signals and improve loan recovery process for wholesale banking and the SME (small and medium enterprises) customer base. Banks traditionally use CA (chartered accountancy) firms that in turn largely go by records given by the companies themselves. It will soon become easier for banks to use information, as most of it will be available online, said analysts.
“A lot of information on the ministry of corporate affairs website is now digitised and it’s easy to know whether the money is moving from the companies to the promoters’ investment company. Similarly, with goods and service taxes, we will have all data for banks to see if the turnover is genuine, excise duty records, sales tax, surcharge,” said Standard Chartered’s Daruwala.
Abhishek Bhattacharya, director at India Ratings and Research said, “In India, a lot of corporates are not required to disclose all covenant breaches in their semi-regulatory filings…Hence, banks should be closer to cash flows.”
It is vital for banks to use all information from all sources — companies and government records. Technology can help banks monitor companies’ cash flows, watch on monetary transactions of group entities and also check speculative calls on currency risks.
According to Bhattacharya, in the last 3-4 years, credit bureaus have helped gather information on retail borrowers, but for companies and SMEs, things are more complex and data is insufficient, he said.
Whatever information is available on companies is more scattered and not collated, hence banks have so far not been able to take advantage of analytics.
With RBI having given banks the deadline of March 2017 to clean up balance sheets, they have little choice but to use whatever tools are available to manage their assets.