E-commerce has changed customer patience, and lending is now judged by the same yardstick. Is it fair to say this has led to asset quality concerns?
Not entirely. Customer impatience becomes a problem only when it pushes lenders to judge less carefully, and that has happened in some places.
Many lenders made the application journey quick but kept the checks at the end. That’s where stress has built up, especially in unsecured lending, and it’s partly why the regulator had to step in. For most loans, though, speed of delivery still isn’t the focus, especially for secured loans like home loans.
That feels safer because the customer goes through more checks. But a slow process affects asset quality in its own way. Good borrowers usually have other options, and when they’re asked for documents again and again, some of them go elsewhere. The ones who stay are often those with fewer choices. So, a slower lender can end up with a weaker book even if its checks are thorough.
Lenders will claim they have better visibility on customers, even for the new-to-credit. Is this defence valid?
To some extent. For a long time, credit bureaus such as CIBIL were the primary check, and lending decisions mostly depended on them. That has changed, partly because of new-to-credit customers.
Many existing-to-credit customers also have a history built largely on small-ticket pocket loans, which says little about how they would handle a bigger one.
Lenders looking at these customers now feel they can underwrite them using Udyam, goods and services tax (GST), PAN and so on.
These sources help, but looked at in isolation, they have limitations because the full picture of the borrower is missing.
Your views on traditional credit history evolving as more real-time and alternative data are available
Credit history will still be used, but it won’t decide a loan on its own anymore. Credit assessment has to look forward, at whether a customer will repay, while the bureau only shows how they have handled credit in the past.
That’s no longer the case. Real-time data, like GST filings and bank transactions shared through account aggregators, shows how the customer is doing today. And, lenders will increasingly have to read the two together.
Lenders have invested heavily in technology over the past decade. How would you assess what that investment has actually changed in the economics of lending?
It has changed the front-end a lot and the rest much less. Onboarding today is largely digital. KYC happens through Aadhaar or video KYC, and applications get filled online in minutes.
But once the application goes in, most of what follows works the way it did before. Documents are checked manually, files go through several rounds of review, and credit decisions and disbursements often wait in a queue for someone to look at them. So, the customer gets through the first step quickly and then waits. When we spoke to borrowers, most had been asked to resubmit documents at least once, and those asked repeatedly were far less satisfied with their lender.
Each back-and-forth also costs the lender, because someone must chase the document, check it again and move the file along. This is why the investment hasn’t changed the economics as much as it should have.
How do you see competition between traditional banks and digital lenders evolving over the next few years?
Banks and digital lenders have taken very different routes. Banks have mostly gone after larger loans, which are relatively safer. Digital lenders build their business on smaller loans at high volumes, much of it unsecured.
For banks, the main gap is speed. Digital lenders have shown that a customer can get a decision in minutes, and borrowers now expect that.
 "Ashok Hariharan, founder of IDfy")