Deciding to accept or reject a loan can be a lengthy process of deliberation for financial institutions. While lending institutes all count in common factors like the type of loan, credit history and current liabilities, each one has a different procedure for the creditworthiness assessment of the applicants.
All financial lending businesses want to ensure that they get their money along with interest within a fixed span of time. Consequently, loan sanction decisions are taken after thorough careful consideration and incur long spans of time.
How Financial Institutes Conduct Creditworthiness Assessment?
How do you know if an applicant will return the money he borrows, timely? There are ways to know which borrows have good money management skills!
We show you how it can be assessed:
About CIBIL Bureau
Banks and other lending companies submit all loan and credit card details of individuals to CIBIL every month. The CIBIL credit bureau collects and stores credit information of individuals and firms. It is easy to find records of a borrower’s performance and repayment on all the credit cards and loans they have raised in the past.
Credit Information Report (CIR)
Once the information is collected and individual’s records are processed, CIBIL draws up a Credit Information Report (CIR). CIBIL report is a repository of all the documents about a borrower’s performance and repayment on all the credit cards and loans.
All Credit Information Reports (CIR) feature an individual’s CIBIL TransUnion score on them. It is a three-digit figure that ranges between 300 and 900. The score is derived after processing all the information that credit institutions hand over to CIBIL, over a period of time. This Credit Information Report (CIR) has no records of saving whatsoever.
Financial institutions know that a credit information company like Credit Information Bureau India Limited (CIBIL) can provide a certified testimony of applicant’s financial discipline. A CIBIL report can be shared with financial companies who request to access it. Even individuals can assess their CIBIL score by visiting the CIBIL website and filling up a form before they pay for the information.
As a financial lending company, CIBIL score is prime criteria to keep in mind for evaluating loan applications. It is a determinant for to help you decide if you should assess a loan application further or not.
Most financial institutions see the CIBIL score of 720 and above in positive light. A healthy CIBIL Report indicates well-managed loans and credit relationships of applicants. Only after seeing a satisfactory CIBIL score, should you proceed to look at the complete CIR to determine loan eligibility of a borrower.
Meaning of DPD (Days Past Due) on a CIBIL Report
CIBIL score is crucial to assess if an individual is capable of dealing with debt burden and if they will be able to repay a loan and an individual’s payment history is a crucial component of a CIBIL score. A particular section of the CIBIL report is called CIBIL DPD (Days Past Due). DPD section pays a vital role in evaluating a loan application. Lenders can easily find DPD information in the credit report under the accounts sections.
DPD is a significant indicator of the financial behaviour of the borrower. Late payment of the dues can affect the CIBIL report in more ways than one. DPD indicates the number of days by which the payment is delayed. In case the applicant has missed any payments in the past, the DPD section reports the details of the delay. It depicts how many days the delay was made and in which month did it happen.
All lender sends the report to CIBIL regarding the timely payment or default of the EMI every month, for all borrowers. The CIBIL DPD report depicts Days Past Due details of up to the last 36 months of an applicant’s payment history. All applicants get separate DPD values for every kind of credit they have raised from the market. Be it personal loans, home loans, education loans, a DPD is generated by the CIBIL institution.
How to Assess DPD in CIBIL Report?
Most lenders do not report the late payment to the CIBIL if the delay is of less than 30 days past the due date. As a lender, if you notice frequent delays in payment, even if those delays are of less than 60 days while assessing CIBIL report of a particular applicant, its best not to ignore it.
Delay past the due date of more than 90 days should be read as red flags on a credit report. Applicants who have missed a payment in the past have a tendency to do so again, which can take a toll on your ROI. One hundred twenty days past the due date on CIBIL report should be unacceptable, if you wish to collect back the money you lend out. Such applicants must be rejected outright.
DPD Evaluation for Loan Application – Best Practices for Lenders
Best practices involve approving loan applications, if you notice that an applicant never skips any payments on credit cards or loans and also makes timely repayments.
DPD is a component of the credit history of applicants, and that is why it is essential when evaluating a loan application. Having XXX as the DPD Value on a CIR report is safe. It means that the previous lender or bank has not updated any data.
On the other hand, having 000 as DPD Value on the CIR suggests that there are no outstanding payments left and all dues have been cleared. XXX and 000 are the two kinds of DPD values that you want to see on a CIR of a loan applicant.
Consistent DPD value of 000 for all the months on the report puts the applicant in a favourable light and hence makes them eligible for loan sanction. They are the least risky proportions for loan disbursement and are likely to repay it in time. Even applicants with low credit scores can get their loan approved with a consistent DPD value of 000.
Any DPD value that is other than the two mentioned above is unfavourable for a profit-seeking financial lending company. DPD values like 30, 60, 90 or even 120 indicates that an applicant has defaulted at the time of EMI payment or has not repaid the EMI amount till the date mentioned. These put applicants in a low credit-worthy category.
Some times lenders also report DPD values differently. These reports comply with asset classification norms set by RBI.
|STD (Standard)||Payments are made within 90 days|
|SUB (Sub – Standard)||Delay of more than 90 days for more than 12 months, NPA for up to 12 months.|
|DBT (Doubtful)||An account that remains sub-standard for a period of 12 months|
|LSS (Loss)||An account where loss is identified and is noncollectable|
DPD Analysis Made Simple With Finezza
With Finezza, you can access a detailed view of the CIBIL report, including the number of loans in DPD, along with the days and dates. Not just that, you also get a more comprehensive multi-credit assessment, thanks to integrations with other credit bureaus as well.
To know more about how Finezza can help you achieve a streamlined lending management process, get in touch with us today!