Good behavior may soon be an additional point for borrowers to receive loans at lower rates. Banks are harboring plans of introducing a beahvior based lending system with the base rate coming into play from 1st July 2010.
Once this proposal comes into action many factors like the customer's punctuality in payment processes, performance on loan commitments of all kinds and frequency of cheque bounces would add to calculate the behavior of the borrower.
Presently the banks generate all details on the credit score of the customer from credit information companies while determining the credibility of the customer.
Base rate has given the liberty to the banks that they can not only charge retail customers as per their risk profile but can also change the risk weightages associated with the term of the loan.
"The base rate will allow risk-rate pricing for retail customers. You create a behaviour score card for a particular customer and depending on his performance, you either increase or decrease the interest rate you charge him," said Shyamal Saxena, General Manager, Retail Banking Products at Standard Chartered Bank.
"The base rate system has definitely set the foundation for dynamic pricing of retail loans. This is a fairly common practice abroad where all interest charges are linked to a customer's behaviour score. It is still unknown in India," said a senior Axis Bank executive.
However, as per bankers the process may take time in getting implemented in the practical scenario. "The consumer banking business in India has seen significant volumes only in the past five-six years and is still not mature. Customers would have to be convinced that such a mechanism is in their best interest," said a senior executive of a public sector bank.
"From a risk-evaluation point of view, a lot needs to be done in India. It will take time for sophisticated credit-scoring models to develop," said Standard Chartered Bank's Saxena.
Some bankers have different opinion about the case too. "Technically it is possible. Banks will have to make sure that they are transparent about how they are charging customers. It also remains to be seen how the Banking Codes and Standards Board will view such a move," said a senior executive from public sector lender.