Need for Alternatives to Traditional Credit Scores

Abstract

As of 2021, more than half of the adult Indian population remained unserved. Only 21.99% of the adult population could be counted as credit served. When we look at the top five Indian banks by total assets, we see that only one bank was utilising more than 60% of its total assets for loans and advances. If banks were able to expand their operations within the unserved population, they could operate at higher leverages. This would mean that the banks would have the ability to operate at lower net interest margins in times of credit crunch and reap higher profits during periods of normalcy. To reach the yet credit unserved, it is essential to gauge their credit worthiness in a manner that does not require credit histories. Hence, in this paper, we will look at some alternatives to traditional credit scoring methods.