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SME Loan Analytical Solutions


Our client, one of India’s premier financial services conglomerates, had a growing and profitable SME loan portfolio (both secured and unsecured). After three years of cautious growth since inception- putting policies, procedures and best practices in place; the management decided they had a solid platform to go for a steep growth curve. With this context, they wanted an end to end review of portfolio credit quality with the following objectives-

  • Credit quality review with respect to future default behavior and recommendations for quality improvement.
  • Portfolio Stress Test Simulator to preempt the effect that macroeconomic stress scenarios would have The stress scenarios were:
    • GDP Growth Slowdown
    • Tougher Access to Finance
  • Lifetime loss Prediction of the existing portfolio.


  • Merged all the business datasets- application data (profile, demographics, financial history of business and promoters etc.), transactional details (payment/ delinquency/ cheque bounce details), product information and other relevant information sources (top-up/ cross-sell etc.) to compile a single view dataset so that each account had a single unique record with all the information related to it.
  • Conducted data mining analyses (clustering, segmentation, KDA etc.) to identify trends and patterns in the loss making accounts, if any. Identified pockets of portfolio that were significantly riskier than others.
  • Based on historical default data, developed a behavioral scorecard for default prediction on active portfolio. Developed a survival model to predict lifetime at account level. Combined these two models for the lifetime loss forecast.
  • Basis various portfolio performance analyses, it was found that monthly portfolio performance had a great correlation to account vintage and some macroeconomic parameters. Devised a statistical relationship to correlate portfolio performance (nonpayment behavior) with macroeconomic changes and built this into an easy to use, parameterized Macro enabled MS Excel tool. The tool was to be used by the CEO’s office and they wanted an easy to use and parameterized tool.
  • Shared a detailed report regarding portfolio leakages, distress trends and recommendations, Life Time Loss Forecast results along with stress testing tool.