1. © 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Scientific and Agile Credit Underwriting Balaji Narayanamurthy Executive Vice President Axis Bank

2. © 2014 Fair Isaac Corporation. Confidential. Scientific and nimble underwriting strategy for a fast growing retail credit business 2

3. Agenda © 2014 Fair Isaac Corporation. Confidential. I.Retail Banking in India and Axis Bank II.Problems Faced III.The Solution IV.Lessons Learnt V.Looking Forward 3

4. © 2014 Fair Isaac Corporation. Confidential. Retail Banking in India and Axis Bank 4

5. © 2014 Fair Isaac Corporation. Confidential. India is one of the fastest growing economies in recent times World GDP Growth Rates (Annual Average %) 5

6. © 2014 Fair Isaac Corporation. Confidential. Market cap growth from 2004 to 2014 Indian banks have grown at a rapid pace and are expected to continue growing 6 35.0 30.9 28.6 15.6 12.7 Oct’14 Market cap (in $Billions)

7. © 2014 Fair Isaac Corporation. Confidential. Depth of mortgage markets—Emerging Asia As % of GDP Male Population in millions Female Population in millions Age group India Population Pyramid 2010 But retail lending is still under-penetrated despite favorable demographics 7

8. © 2014 Fair Isaac Corporation. Confidential. Only 17% of bank lending is to retail customers 8 Bank Lending

9. © 2014 Fair Isaac Corporation. Confidential. We are a full service bank Begun operations in 1994 3 rd Largest Private Sector bank in India Retail and Corporate 2,500 Branches and 13,000 ATMs 7 Overseas Branches/Offices Balance sheet size of $ 63.9bn Net profit of $1,036MM Key Products Investments Personal loan Axis bank is one of the largest, most profitable and fastest growing bank in India 9 Checking

10. © 2014 Fair Isaac Corporation. Confidential. Portfolio2010 Actuals Aspiration for 2015 and beyond Retail Lending (as % of bank’s book) 19%30+% Bank Asset book growth rate CAGR of 20% Growing retail lending portfolio was one of the key imperatives for the bank 10

11. © 2014 Fair Isaac Corporation. Confidential. Problems Faced 11

12. © 2014 Fair Isaac Corporation. Confidential. In our large population of 1.3 billion… Mobile phone penetration is high ~ 950 MM ~ 450 MM About half of the population have a bank account ~ 175 MM … but less than 20% of adult population have prior credit history A large portion of the population does not have prior credit history 12

13. © 2014 Fair Isaac Corporation. Confidential. High Low HighMed Quantitative score-cards Judgmental/ local flavor Personal loan Microfinance Agriculture and commodity loans Home loan Commercial vehicles Customer needs are diverse, leading to multiple lending products with very different operating models 13

14. © 2014 Fair Isaac Corporation. Confidential. 2,500 branches 137 asset sales centers 29 states and 675 districts Complexity: Needed to create unique cut offs, risk profiles for each state and district The bank operates across a large and diverse geography, which creates complexity 14

15. © 2014 Fair Isaac Corporation. Confidential. 2010 microfinance crisis in state of Andhra Pradesh 2008–09 credit crisis ~$50MM new non-preforming assets in unsecured products High cost-to-income ratios Long turnaround time in application processing Critical to keep credit losses in check… … and improve operational efficiencies We need to stay on top of costs 15

16. © 2014 Fair Isaac Corporation. Confidential. The Solution ► Our Solution Consisted of 4 Key Building Blocks 16

17. © 2014 Fair Isaac Corporation. Confidential. Data driven initial recommendation Local flavorOverlay/judgmentFeedback 1234 Decision overrides Subject to constraints Regular monitoring an feedback Learning Our solution hinged on 4 key pillars 17

18. © 2014 Fair Isaac Corporation. Confidential. …tools to implement data driven underwriting Multi-bureau Connectors Rules engine -8 Application scores -3 Marketing scores -5 Behavior scores Built risk scores Infrastructure for data driven underwriting... Risk data scientists Bureau + Banking + Other Data Leverage partners 1. Establish a robust data driven recommendation engine for credit 18 Psycometrics

19. © 2014 Fair Isaac Corporation. Confidential. Technical architecture before…Technical architecture after... Scores Loan Origination System Loan application Bureau Underwriting Policy + + Loan application Multi-bureau Scores Underwriting Policy + Loan Origination System 1. Establish a robust data driven underwriting framework (continued) 19

20. © 2014 Fair Isaac Corporation. Confidential. National credit head Central underwriting team Regional and local credit experts Org structure to supplement local flavor…...tools to enable selective judgment Regional policy heads—9 regions Auto Approve Auto Decline Manual Review Final Credit Decision Underwriter with selective override authority 2. and 3. Supplement with local flavor and selective judgment 20

21. © 2014 Fair Isaac Corporation. Confidential. 4. Regular feedback and monitoring to keep it all together plus learn continuously 21 Regular feedback and monitoring Early warning signals Risk super users meet Changing business dynamics New business development

22. © 2014 Fair Isaac Corporation. Confidential. Outcomes 22

23. © 2014 Fair Isaac Corporation. Confidential. Consumer Lending Portfolio (Indexed to 2008) Gross Non-Performing Assets (NPA)% to Total Portfolio (Indexed to 2008) CAGR: 35% We have been successful in our aspiration of growing the book while keeping risk contained 23

24. © 2014 Fair Isaac Corporation. Confidential. *Source: CIBIL Industry Report We have been able to do it by having industry beating risk levels 24

25. © 2014 Fair Isaac Corporation. Confidential. 1x 1.5x With marginal increase in underwriters, we have been able to handle 4X volume increase 25 1x 3.9x 1x 2.7x

26. © 2014 Fair Isaac Corporation. Confidential. 8 Weeks 3 Weeks 69% 91% We have significantly improve our TAT for both application processing and system changes 26 FICO ® business rules management system PrePostPrePost

27. © 2014 Fair Isaac Corporation. Confidential. Loans Sales Centers FY11 Indexed at 100 Disbursements Mix by Region We have been expanding our geographical footprint, going deeper into semi-urban and rural regions 27

28. © 2014 Fair Isaac Corporation. Confidential. As % of total lending Fast growing retail lending book Retail lending in $B Net Profit ($MM) Net Advances ($B) Axis bank growing fast and is now even better positioned for the future 28

29. © 2014 Fair Isaac Corporation. Confidential. Risky segment Centralized analytics reveal local insights… 29

30. © 2014 Fair Isaac Corporation. Confidential. Geography level Insight Policy Changes Quick centralized policy and score cut off changes in at city level …that allow for deeper analysis and standardized policy changes 30

31. © 2014 Fair Isaac Corporation. Confidential. Lessons Learnt and Looking Forward 31

32. © 2014 Fair Isaac Corporation. Confidential. Lessons learnt Collaboration Management Support Communication 32 Cultural Change

33. © 2014 Fair Isaac Corporation. Confidential. Way forward…. Commodity loan Personal loan 1. Increase coverage…. Complete…. Cards Coming Soon…. Gold loan 2. Move from Turn-around- time to Instant decision… 3. Expand across customer lifecycle… Acquisition Account Management Collections Done Partially done To be done 33

34. © 2014 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Thank You! Balaji Narayanamurthy Executive Vice President Axis Bank

35. © 2014 Fair Isaac Corporation. Confidential. Please rate this session online! 35 Balaji Narayanamurthy Executive Vice President Axis Bank