How Artificial Intelligence is Transforming Loan Assessment

Posted in Lending Articles By Bajaj Markets-
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With technological advancements at the cusp, artificial intelligence has become a part of our life, at times, even without our knowledge. With more than half of the applicants being rejected for the applied loans, the adoption of artificial intelligence in finance is expected to be a game-changer. It has been estimated that automated systems help in loan assessment in a way that reduces 50-90% company cost as compared to that of bank employees. Artificial intelligence in finance also enhances the speed and quality, especially while analyzing the creditworthiness of the loan applicant. Its introduction in the banking sector has led to enhanced security. Studies conducted in India also asserts that more than 30% of the banks have already started using artificial intelligence for loan assessment. Along with saving time and cost, artificial intelligence also ensures that the bank does not lend money to unscrupulous buyers.

How AI is being used in lending

Lately, it has been difficult for most financial institutions to determine the creditworthiness of loan applicants. With lenders losing a huge share of their business, many deserving burrowers too are thrown out of the credit net. With a large number of loan applicants being rejected due to poor credit history, AI aids in solving these issues by employing digital footprints, predictions, and other important analyses. Some of the ways by which AI is being used in loan assessment are:

1. Scoring and AI

AI considers income, credit history, length of service, and even analysis of transactions done by the applicant to assess the CIBIL score. It helps in understanding the repayment tendency and solvency of the loan applicant. This is done by taking into consideration large sets of data and by conducting various statistical analyses.

2. Uplift models

The models help in assessing debt analysis of the loan applicant. Various banks have implemented the uplift models to estimate the client’s reactions towards recoveries. These models differentiate lenders into various lists like the ones likely to avoid reminder calls from banks, the ones who are likely to repay the loan on time and the ones who need to be prompted.

3. Smart Scoring system

Various banks are now implementing their individual scoring systems that screen more than 10,000 different characteristics of loan applicants in seconds. These scoring systems are not only adept at analyzing customer’s credit histories but also in conducting the behavioral analysis of the loan applicants, for instance, by calculating the time taken by the applicant in filling an application form. These systems can be programmed to even forecast the consequences of risks taken by the banks.


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Using AI for loan assessment

AI has led to a paradigm shift in the way personal loans are sanctioned to the lenders. Here’s how AI is used for loan assessment.

  • Building credit score

More than 2/3rd of the Indians do not have a credit score. However, artificial intelligence in finance can now help build a credit score for these people.

  • Analyzing digital footprints

AI has the ability to comb through various data levels in order to analyze the creditworthiness of the applicant. This helps in more people to be eligible for receiving loans in contrast to simply being rejected due to poor credit scores.

  • Search based analysis

AI conducts search-based analysis to retrieve information of thin-file borrowers, meaning the individuals without any credit history.

  • Individualize data

AI aids in individualizing data to conduct a risk analysis to predict risk refinement in loan assessment.

The benefits of AI in Finance

Here are some benefits of artificial intelligence in the financial arena are :

  • Understanding the digital presence of the applicant with the help of AI to ease the assessment of the digital presence of the loan applicant
  • Automating routine processes
  • Building credit profiles for the individuals applying for a loan for the first time
  • Increasing service speed by the quick process of loan sanctioning
  • Decreasing costs of financial institutions by taking decisions on behalf of the banks
  • Ability to assess huge chunks of data accurately in a short time period
  • Improving compliance and security in banks
  • Enhancing management of risks and data security


With the incorporation of artificial intelligence in financial institutions, experts believe that the number of loan borrowers will increase by up to 350 million in 2023. Easing the process of rejecting faulty individuals that are unlikely to repay the loan, AI helps in risk assessment and saving banks from losing money. AI also acts as a primary source of data to cater to loan assessment opportunities to first-time loan borrowers. Thus, artificial intelligence, in more ways than one, has streamlined the lending process.

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