Banks to assess borrowers’ creditworthiness via digital footprints for home loans
In a move aimed at expanding loan access, banks are developing a new model to evaluate individuals’ eligibility for home loans based on their digital payment trails instead of only considering salaried or tax-paying applicants.
Financial Services Secretary Vivek Joshi revealed that similar to the recently announced assessment system for MSME loans, a product is being designed for housing loans that will examine borrowers’ digital footprint to make credit decisions.
At present, only salaried individuals or tax filers can obtain home loans from banks due to documentation requirements. However, under the upcoming framework, banks will analyze spending patterns from consumption data to determine creditworthiness of non-salaried applicants as well.
Joshi explained that digital traces like utility bills, bank statements, or salary credits paid to employees can showcase businesses transacting regularly despite unconventional documents. Banks tapping into such electronic payment footprints aims to facilitate loans for a wider segment.
Like the MSME model, the housing option intends reducing dependence on formal records alone. By tapping underlying transactional details, it could prove advantages for small enterprises and individuals currently found ineligible due to incomplete papers.
With growing digitalization enabling electronic footprints, the move is timely in recognizing alternate ways to judge financiable clients. While protecting data privacy, it seeks judging credit-worthiness via actual spending clues instead of restrictive existing criteria.
If implemented securely, the innovative framework promises extending loan access to deserving applicants who may be financially sound despite non-salaried occupations or lacking tax filings. Its success, however, would rely on accurate assessments sustaining low bad debts.
