Do you know, when you download an App of a bank you do business with, it asks you to grant endless permissions.
Now, although the primary intent of seeking permissions is to facilitate the smooth functioning of the App, banks—App providers often misuse the collected information. For instance, an App may have a permission to read your SMS’, but the main purpose of this is to read the OTP and auto-fill it in without you having to do this exercise manually. And the trouble starts when banks read all your SMS’ in the name of “credit underwriting”.
Don’t be shocked to read this.
In the absence of strong laws protecting your privacy, banks are leveraging data they collect from you to curtail risk in the loan proposals. But there’s no guarantee, they won’t misuse it. So, perhaps data privacy is a myth.
Also, it seems the role of credit information and rating agencies is diminishing. Hopefully, the RBI is keeping a watch on these developments. More astonishingly, banks and their heads have been vocal about it like never before.
Does that mean, it’s all happening with the implied consent of the regulator? RBI must issue a clarification on this matter.
Let’s see what bankers have to say about this issue…
Dipak Gupta, Joint Managing Director of Kotak Mahindra Bank said, "Credit bureaus are increasingly becoming irrelevant.Traditionally, we have had 40% weightage to bureaus, but because there is so much data available that weightage may be 20%.”
Availability of data is one, and using it without the consent of the user is another. Apps seek permissions to use data; but, does this mean the collectors of the information can make any indiscriminate use of it? Does the collector become the owner of the data collected?
If this is true, we need a water-tight policy against such practices. What’s the guarantee that the same data won’t be misused to blackmail the borrower by some bank employee who has privy to such data?
Being aware about the pitfalls of using social media record in loan underwriting, some business leaders are taking a cautious view on such practices.
Mr Arvind Kapil, group head of unsecured, home and mortgage loans at HDFC Banksaid, "On social media, banks are at a stage where it is adding value but this co-relating will have a long way to go in yes and no situations." He added further that, "We are working on social media but you also have to bear in mind that privacy laws will get strengthened. We are also learning how to grow with these insights that are coming in. But at this stage, you have to invest in it."
These practices aren’t new in developed countries, where a bad review about a smaller enterprise can cause a trouble to the business owner when securing credit. Banks and other financial institutions in the developed countries are likely to look at your Linkedin Profile, Facebook pages, your travel history, recommendations, and testimonials, etc., before sanctioning a loan — unsecured loan to be more specific.
There have been instances in the past where a person was denied a health insurance because of his persistent negative posts on social media, which made the insurer believe that he had a negative mindset and was more prone to heart and psychological disorders.
Banks and other financial institutions have been following the similar approach to accept or reject the credit proposals.
It’s a good practice to look beyond credit bureaus. However, over relying on the social media records of a potential borrower can cause fatal errors at the time of loan underwriting; if the borrowers know how to engineer these to make them look more reliable.
Therefore, the banks and other financial institutions shall try to strike the balance while being innovative. Moreover, they must respect the privacy of a potential borrower and should stay away from unethical practices such as reading SMS’. Blatant admissions of the banking heads in this regard are all the more worrying.
First and foremost, borrow only as much you can repay without any stress. You shouldn’t borrow for unproductive causes and avoid impulsive buying decisions which often lead to higher indebtedness.
Usually financers navigate your social media record only in absence of a proven credit history or if you are a border-line borrower — meaning by conventional parameters lending to you is risky. In all such cases, make sure, you don’t have any objectionable posts on social media and there’s no misrepresentation in any of your social media profiles.
Unless you have a financial plan in place, you will always keep wondering how much you should ideally borrow. Every financial decision you take must be well-aligned with your risk appetite, financial goals, and current financial situation.
If you are yet to create your personalised financial plan, please feel free to take PersonalFN’s assistance in this process.
