Money supply and loan growth in India has been on the rise in the past few years. Interest rates have also been quite favorable as compared to a decade ago. The pandemic and recent economic global events did put a dent in the loans growth and interest but money supply has been consistently growing in India.
The decline in interest rates has made it easier for businesses to borrow money. This has helped to boost economic growth and has made it easier for businesses to get access to capital. However, the decline in interest rates has also made it more difficult for banks to make a profit.
While the Indian economy is growing rapidly, and there is increased demand for credit, the quality of some loans has declined, and this is a cause for concern. As the credit market grows so does the credit risk. Credit policies, digital banking and better banking practices have reduced the credit risk in India in recent years, but there are still some challenges that need to be addressed.
One of the biggest challenges facing the Indian credit market is the high level of non-performing assets (NPAs). The NPA ratio in India is currently around 5.8%, which is much higher than the global average of 3%. This high level of NPAs is a major drag on the Indian economy, and it is making it difficult for banks to lend money to businesses.
Another challenge facing the Indian credit market is the lack of credit information. There is a lack of reliable data on borrowers’ creditworthiness, and this makes it difficult for lenders to assess the risk of lending money. This lack of credit information is a major obstacle to economic growth, and it is making it difficult for businesses to get the financing they need to expand.
Despite these challenges, there are some positive signs in the Indian credit market. The government is taking steps to address the problem of NPAs, and it is also working to improve the availability of credit information. These efforts are starting to bear fruit, and the credit risk environment in India is expected to continue to improve in the coming years.
There are new age solutions that are helping to address this NPA issue and credit crunch. Artificial intelligence (AI) is being used to assess the creditworthiness of borrowers, and this is helping banks to make more informed lending decisions.
One way that AI is being used to solve India’s credit crunch is through the use of early warning systems. These systems use AI to analyze data points such as payment history, litigation, and media sentiment to identify borrowers who are at risk of defaulting on their loans. This allows lenders to take action to prevent defaults, such as by restructuring loans or by requiring borrowers to provide additional collateral.
Another way that AI is being used to solve India’s credit crunch is through the use of predictive scoring models. These models use AI to analyze data points such as financial ratios, industry outlook, and other factors to predict the likelihood of a borrower defaulting on their loan. This allows lenders to make more informed decisions about who to lend money to.
Overall, AI is a promising new technology that has the potential to solve India’s credit crunch. As AI continues to develop, it is likely that it will play an even greater role in the future of lending in India.
Here are some of the benefits of using AI to solve India’s credit crunch:
- AI can help to assess the creditworthiness of borrowers more accurately. This can help banks to reduce the risk of lending money to businesses that are likely to default.
- AI can help to make the lending process more efficient. This can save banks time and increase profitability.
- AI can help to make lending more accessible to businesses. This can help to boost the economy.
- Predictive AI models like the predictive scoring done at Crediwatch can identify risk of future default by borrowers. This allows lenders to mitigate such occurrences by restructuring loans or by requiring borrowers to provide additional collateral and reduce NPA.
At Crediwatch we are helping to solve the problem of NPAs and bad credit in India using data analytics and proprietary AI-powered models. We analyze millions of data points to create a comprehensive view of a borrower’s creditworthiness.
Crediwatch is a valuable partner to lenders in India. We are working with many banks to help improve the credit risk environment in the country.
Author: Sandeep Anandampillai, Co-Founder & CPO, Crediwatch
Last Updated: May 24, 2023
