A comparative Picture of Analytic Models for Credit Risk Default Prediction- A Case of Retail

Bank
Retail banks are exposed to considerable credit risk in its product portfolio that comprises
Loans
-

vehicle loans,
home loans,
personal loans and
credit cards.

Banks allocate substantial resources in order to ensure quality loan origination.

This is accomplished by analysis of the past data on credit default, and using predictive models
for credit granting decisions.
The variables that could be used for predicting default are:
Default rates tend to rise during economic downturns, since investors and businesses see
a decline in income and sales while still required to pay of the same amount of debt.

Interest rate (Finance rate),

An interest rate is the rate at which interest is paid by borrowers (debtors) for the use of
money that they borrow from lenders (creditors).

Finance charges,
a finance charge is any fee representing the cost of credit, or the cost of borrowing. It is
interest accrued on, and fees charged for, some forms of credit. [1] It includes not
only interest but other charges as well, such as financial transaction fees.

Finance amount(amount of loan),

The amount a borrower receives from a lender. The amount financed is usually equal to the prin
cipal less any finance charges, such as an application fee or down payment.

Average EMI(Equated Monthly Instalment),

A fixed payment amount made by a borrower to a lender at a specified date each calendar
month. Equated monthly installments are used to pay off both interest and principal each
month, so that over a specified number of years, the loan is paid off in full."

Income to Instalment ratio (noir),

A ratio that signifies the percentage of the income that can be set aside for repayment of the loan
under the assumption that 50% to 60% of the income is required by the person for his own
provisions.

First information report(fire),

A First Information Report (FIR) is a written document prepared by police organizations

when they receive information about the commission of a cognizable offence

Gross income of the customer(gih),

The amount by which sales revenue exceeds production costs (cost of sales).

Gross income of spouse(gis),

The amount by which sales revenue exceeds production costs (cost of sales).

Gross income of co-borrower(gic),

Average bank balance/EMI(noisb).
Average Balance refers to the average amount to be maintained in your account, over a certain
period

The data set for this is available and the aim is to use appropriate analytic models for predicting
credit default and then assess which is the best in terms of accuracy.