Good behavior may soon be an extra point for borrowers to get loans at lower rates. This may entitle them to receive cheaper car loans. Banks have plans of starting a behavior based lending system once the base rate comes into effect from 1st July 2010.
After this plan comes into force, other issues such as the borrower’s timeliness in payment, adherence to loan commitments of all kinds and number of cheque bounces would add to decide the borrower’s behaviour.
Currently the banks get all the information on the credit score of the borrower from CIBIL, when deciding the authenticity of the borrower.
With base rate, the banks can not only charge retail customers according to their risk profile but can also alter the risk weightages linked with the duration of the loan.
Shyamal Saxena, General Manager, Retail Banking Products at Standard Chartered Bank said, “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.
A leading Axis Bank official said, “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”.
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