Scientific and Agile Credit Underwriting
Balaji Narayanamurthy
Executive Vice President
Axis Bank
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
Scientific and nimble underwriting strategy
for a fast growing retail credit business
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© 2014 Fair Isaac Corporation. Confidential.
Agenda
I.
Retail Banking in India and Axis Bank
II. Problems Faced
III. The Solution
IV. Lessons Learnt
V. Looking Forward
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© 2014 Fair Isaac Corporation. Confidential.
Retail Banking in India and Axis Bank
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© 2014 Fair Isaac Corporation. Confidential.
India is one of the fastest growing economies in recent
times
World GDP Growth Rates
(Annual Average %)
12
China
India
United States
World
10
8
6
4
2
0
1980s
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© 2014 Fair Isaac Corporation. Confidential.
1990s
2000s
2010s
Indian banks have grown at a rapid pace and are expected
to continue growing
Market cap growth from 2004 to 2014
Oct’14 Market cap
(in $Billions)
13x
35.0
4x
30.9
7x
28.6
21x
15.6
45x
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© 2014 Fair Isaac Corporation. Confidential.
12.7
But retail lending is still under-penetrated despite
favorable demographics
India Population Pyramid 2010
Female
Population in millions
Male
Population in millions
Depth of mortgage markets—Emerging Asia
As % of GDP
Age
group
7
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Only 17% of bank lending is to retail customers
Bank Lending
Government,
28%
Commercial,
55%
Retail, 17%
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© 2014 Fair Isaac Corporation. Confidential.
Axis bank is one of the largest, most profitable and fastest
growing bank in India
Key Products
We are a full service bank

Begun operations in 1994

3rd Largest Private Sector bank in India

Retail and Corporate

2,500 Branches and 13,000 ATMs

7 Overseas Branches/Offices

Balance sheet size of $ 63.9bn

Net profit of $1,036MM
Checking
Personal loan
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Investments
Growing retail lending portfolio was one of the key
imperatives for the bank
Portfolio
2010 Actuals
Aspiration for 2015
and beyond
Retail Lending (as % of
19%
30+%
bank’s book)
Bank Asset book
growth rate
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CAGR of 20%
Problems Faced
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A large portion of the population does not have prior
credit history
In our large population of 1.3 billion…
Mobile phone
penetration is high
~ 950 MM
About half of the population
have a bank account
~ 450 MM
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© 2014 Fair Isaac Corporation. Confidential.
… but less than 20% of adult
population have prior credit history
~ 175 MM
Customer needs are diverse, leading to multiple lending
products with very different operating models
Microfinance
Home loan
High
Judgmental/
local flavor
Commercial vehicles
Agriculture and
commodity loans
Personal loan
Low
Med
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Quantitative score-cards
High
The bank operates across a large and diverse geography,
which creates complexity
2,500 branches
137 asset sales centers
29 states and 675 districts
Complexity:
Needed to create unique cut offs, risk profiles
for each state and district
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We need to stay on top of costs
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Critical to keep
credit losses in check…
… and improve
operational efficiencies
2008–09 credit crisis
~$50MM new non-preforming
assets in unsecured products
High cost-to-income ratios
2010 microfinance crisis in state of
Andhra Pradesh
Long turnaround time in
application processing
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The Solution
► Our
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Solution Consisted of 4 Key Building Blocks
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Our solution hinged on 4 key pillars
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1
2
3
4
Data driven initial
recommendation
Local flavor
Overlay/judgment
Feedback
Decision
overrides
Subject to
constraints
Regular
monitoring
an feedback
© 2014 Fair Isaac Corporation. Confidential.
Learning
1. Establish a robust data driven recommendation engine
for credit
Infrastructure for
data driven underwriting...
Risk data scientists
…tools to implement
data driven underwriting
Built risk scores
- 8 Application scores
- 3 Marketing scores
- 5 Behavior scores
Bureau + Banking + Other
Data
Psycometrics
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Leverage partners
Multi-bureau
Connectors
Rules engine
1. Establish a robust data driven underwriting framework
(continued)
Technical architecture before…
Loan
application
Loan Origination
System
Bureau
Technical architecture after...
Loan
application
Loan Origination
System
Underwriting
+
Policy
Underwriting
+
Scores
Policy
+
Scores
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© 2014 Fair Isaac Corporation. Confidential.
Multi-bureau
2. and 3. Supplement with local flavor and selective
judgment
Org structure to
supplement local flavor…
...tools to enable
selective judgment
National credit
head
Auto
Approve
Central
underwriting team
Regional policy
heads—9 regions
Auto
Decline
Regional and local
credit experts
Underwriter
with selective
override
authority
Final Credit
Decision
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© 2014 Fair Isaac Corporation. Confidential.
Manual
Review
4. Regular feedback and monitoring to keep it
all together plus learn continuously
Early warning
signals
New
business
development
Regular
feedback and
monitoring
Changing
business
dynamics
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Risk super
users meet
Outcomes
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© 2014 Fair Isaac Corporation. Confidential.
We have been successful in our aspiration of
growing the book while keeping risk contained
Consumer Lending Portfolio
(Indexed to 2008)
Gross Non-Performing Assets (NPA)%
to Total Portfolio (Indexed to 2008)
608
153%
100
34%
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© 2014 Fair Isaac Corporation. Confidential.
We have been able to do it by having industry
beating risk levels
*Source: CIBIL Industry Report
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© 2014 Fair Isaac Corporation. Confidential.
With marginal increase in underwriters, we have been able
to handle 4X volume increase
# Underwriters
# Applications
3.9x
# Applications
per underwriter
2.7x
1.5x
1x
FY11
25
1x
FY14
© 2014 Fair Isaac Corporation. Confidential.
FY11
1x
FY14
FY11
FY14
We have significantly improve our TAT for both application
processing and system changes
% Applications within TAT
TAT for System changes
91%
8 Weeks
69%
3 Weeks
Pre Pre
BLAZE
PostPost
BLAZE
FICO® business rules management
system
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© 2014 Fair Isaac Corporation. Confidential.
Pre Pre
BLAZE
PostPost
BLAZE
®
FICO business rules management
system
We have been expanding our geographical footprint,
going deeper into semi-urban and rural regions
Loans Sales Centers
FY11 Indexed at 100
Disbursements Mix by Region
1%
# Sales Centers
211
27%
7%
Rural
27%
28%
17%
11%
28%
Semi- Urban
17%
16%
15%
Urban
100
Metro
56%
2011
49%
45%
FY 13
FY 14 Est
2014
FY 11
27
55%
© 2014 Fair Isaac Corporation. Confidential.
FY 12
Axis bank growing fast and is now even better positioned
for the future
Fast growing retail lending book
Net Advances ($B)
23.7
28.3
28.0
Retail lending in $B
38.3
32.8
17.4
FY10
FY11
FY12
FY13
3.5
4.6
FY10
FY11
6.3
11.8
9.0
FY14
FY12
FY13
FY14
40.0%
As % of total lending
Net Profit ($MM)
27.4%
1,036
863
20.0%
19.5%
FY10
FY11
707
FY17 est
30.7%
22.1%
565
419
FY10
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FY11
FY12
© 2014 Fair Isaac Corporation. Confidential.
FY13
FY14
FY12
FY13
FY14
FY17 est
Centralized analytics reveal local insights…
Risky segment
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© 2014 Fair Isaac Corporation. Confidential.
…that allow for deeper analysis and standardized policy
changes
Geography level Insight
Policy Changes
Quick centralized policy and
score cut off changes in at
city level
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Lessons Learnt and Looking Forward
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Lessons learnt
Cultural Change
Communication
Collaboration
Management Support
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© 2014 Fair Isaac Corporation. Confidential.
Way forward….
1. Increase coverage….
Complete….
Coming Soon….
Personal loan
2. Move from
Turn-aroundtime to Instant
decision…
3. Expand across customer
lifecycle…
Done
Partially
done
Commodity loan
Collections
Account
Management
Cards
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© 2014 Fair Isaac Corporation. Confidential.
Gold loan
To be done
Acquisition
Thank You!
Balaji Narayanamurthy
Executive Vice President
Axis Bank
© 2014 Fair Isaac Corporation. Confidential.
This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent.
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Balaji Narayanamurthy
Executive Vice President
Axis Bank
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© 2014 Fair Isaac Corporation. Confidential.