Data for Development

Impact of Digitization on the

Private Credit Landscape in India
As India concludes its triumphant G20 presidency with the theme "One Earth,
One Family, One Future," the underlying principle of “Data for development"
showed the nation's commitment to leveraging data for quantum growth. At the
forefront of this journey is the transformative power of digitization, driven by
initiatives like Digital India. This concerted effort has catapulted the country into a
new era of growth, seen prominently in the economic, social, and health sectors.
Notably, India executed an impressive 85 billion transactions through UPI in FY
2022-23, projected to reach 1 billion daily transactions by 2026.

Data Source: NPCI Image Source: Moneycontrol

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 Along with mass economic and social benefits of digitization, niche segments
such as private credit investing are also benefiting greatly. The widespread
adoption of digitization across various economic segments, coupled with the
industry's rapid embrace of this transformation, provides investors with an
invaluable trove of data. This, in turn, enhances the efficiency and precision of
decision-making processes for private credit investors.

In our view, private debt investing is essentially a function of 5Cs -character,

capital, capacity, collateral, and conditions. Private Debt investors look at
“Character” to understand the past conduct of the borrowers, their credit history
with historic lenders and an assessment of any potential litigations, reputational
concerns, and how they navigate challenges.

CAPACITY
Assesses borrower's
debt-to-income ratio

05
CAPITAL
CONDITIONS
04 Indicates the
borrower’s level of
Factors like interest
rate & amount of 01 seriousness
principal

CHARACTER
03 COLLATERAL
02 Offers assurance that if the
Aka "credit history"
borrower defaults on the
loan, the lender can
repossess the collateral

The 5 C’s of Credit Source: Investopedia

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Under Capital, an assessment is made of the promoter’s commitment through
equity infusion, considering the scale of the company and the difference between
book value and fair value of equity. For Capacity, the investors evaluate the
company’s earning trajectory and potential for future growth, coupled with the
successful translation of revenue into cash flows. Capital and Capacity together
reveal the leverage in the company. Collateral involves determining the security
cushion that the company can provide in case of the worst-case scenario and
Conditions is assessment of the business environment and contextual factors
such as adverse political conditions, regulatory changes, and other external
factors.

Digital sources provide

information for financial
performance, industrial
performance, market, sentiment
analysis as well as assessing
external risk factors. Information
regarding GST filings of
promoters give a sense of cash
flow of sponsors and their
entities.
To take this a step further, filings of direct taxes help investors in getting insights
into the borrower’s credit worthiness. Information from credit bureaus, filings with
insolvency and bankruptcy tribunals along with data from banks help in assessing
credit history. Banks in India now share borrower details with third parties using
Open API with the users’ permission. Additionally, records of company are
digitized and available along with history of performance. information regarding
all Directors of the company and other directorship positions held by them are all
available and analysed. This information feeds into dynamic credit assessment risk
models which help in pricing risk better.

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In a landmark development, the Reserve Bank of India has announced the
establishment of a "Public Tech for Frictionless Credit" Platform. This platform will
create an open architecture facilitating the seamless flow of digital information
from various Central and State Government entities, credit bureaus, and digital
identity lenders. The platform, designed as a one-stop digital clearinghouse for
credit-related information, is poised to streamline the loan approval and disbursal
process, fostering a more efficient credit ecosystem.

Public Tech For Frictionless Credit

While private debt inherently involves elements of both art and science, the
digitization of data across various business segments profoundly influences the
scientific analysis of each deal. This, in turn, affords private credit investors the
space, time, and platform to focus on the nuanced art of private lending in India.

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About Neo Wealth and
Asset Management
Neo Wealth and Asset Management is a new-age asset management
and financial advisory platform that aims to provide trustworthy,
transparent, and unbiased financial solutions to its clients. Set up by
Nitin Jain, Neo Group aims to educate, enhance, and empower
investors with optimal and value accretive financial tools for a secure
and balanced future.

Neo Asset Management, Multifamily Office, and Retail businesses

seek to serve both institutional and retail customers, through global
best-in-class governance standards, innovative technology-driven
services, and a highly accomplished team with deep domain
expertise in all its operations.

For more Information, please visit www.neo-group.in

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