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Loan Monitoring Use Case For Account Aggregator Framework

14 May 2020

The majority of the Lenders have an analytics module to determine the ‘collectability’ of the loans given to their borrowers. 

If the borrower is an ‘Existing to Bank (ETB)’ customer, the lender is able to analyze the bank statement to determine the Financial Health of the Borrower. 

Financial Health of the Borrower

However, today there are many more data signals which a lender could use to determine the financial health of the borrower and generate early warning signals,

  1. Bank statement of the borrower from other banks which reflect the pending receivables
  2. DPD (Days Past Due) data of active loans
  3. New Sales and Purchase data from GSTN 

How can lenders get access to the above data which can be used by their analytics module? The borrower has to submit PDF documents of other bank accounts to the lender – this is an impractical, unscalable approach. 

Monitoring Financial Health of Borrower with Account Aggregator

Banks/NBFCs will want to understand how their customer (borrower) is performing with respect to new orders and account receivables.

We frame a potential idea on monitoring the financial health of borrowers using the AA public infrastructure. The account aggregator public infrastructure enables lenders (FIUs) to acquire data related to new orders (GSTN) and account receivables (Bank Statements).

The Account Aggregator ‘Loan Monitoring’ Use Case will help identify early warnings and opportunities to double down on customers (borrowers) will be of great help to the Lending Financial Institution. 

This use case will support the financial sector (BANK/NBFC) for effective Loan Monitoring for ETB & NTB (New To Bank) customers.

This Use Case enables lenders to monitor the cash flow of the borrower for all kinds of loan products like Busines Loan, Personal Loan, Credit Card, Vehicle Loan, Loan Against Property, Working capital loan, etc.

Loan Collections During & Post Covid-19 

Many reports and discussions with Bank/NBFC heads have highlighted that Lenders are expecting their Retail and SME Portfolio NPA to increase by 300-500 basis points which are changing day to day basis. 

Loan Monitoring is not specific to the post-CoVID-19 era but we see its relevance increasing during this pandemic.  

Data Flow Explaining Loan Monitoring Use Case

We assume the borrower has linked his bank accounts [complete list of banks on AA] and GST account on his account aggregator app

  1. Borrower shares his AA handle with the lender
  2. The lender (FIU) sends a request to the borrower’s Account Aggregator to obtain a recurring Consent to monitor borrower’s accounts (FIPs).
  3. The purpose code for this recurring Consent would be “104 – Account Query and Monitoring, Explicit consent for monitoring of the accounts” as defined by ReBIT.
  4. Borrower approves the Consent either on his AA app or in the AA-SDK which is part of the lender’s mobile app/web client.
  5. This consent will be recurring in nature which will enable the Lender to request for a summary of Bank Account from customer’s bank account(s) and GST (in the case of SME) from GSTN. 
  6. The frequency of the data pulled from FIPs can vary from lender to lender.
  7. The expiry date of the Consent is usually the tenure of the loan + NPA period 

Using UPI Public Infrastructure For Loan Collections

On a different note, in addition to Loan Monitoring, the Lenders can also ask customers to provide a UPI Mandate – collection request via UPI to enable digital collection. This can be done for customers who have not set up auto-debit or NACH.

E-Mandate together with Bank account monitoring via AA will provide additional comfort to lenders on when to exercise the E-mandate.

Opportunity for Technical Service Providers To Implement Loan Monitoring Use Case

If you are a technical service provider working in the area of underwriting, analytics with Banks, NBFCs, the implementation of the Loan Monitoring Use Case is a new opportunity worth exploring.

The analytics/decision module developed by the TSP will tap the data received by the lender’s FIU module for decision making. This analytics module will not interact with the Account Aggregators. 

Please see the ‘Data Analytics TSP‘ section for further information.

Resources

  1. Account Aggregators in India
  2. Participants in the AA Ecosystem
  3. Use Cases For Account Aggregator Framework
  4. Technical Service Providers in the AA Ecosystem