MC EXCLUSIVE L&T Finance hopes to succeed in assessing borrower quality through its underwriting engine

Sudipta Roy, managing director and chief executive officer of L&T Finance

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26 Aug, 2025 12:21

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If all goes as planned, L&T Finance may emerge as the first NBFC to have cracked the code of using non-traditional sources of data to monitor at scale the quality of borrowers, a domain that has so far been viable only in China for underwriting loans.

Mining of alternative data involves using non-traditional sources such as GST filings, e-payments and online behavior to assess a borrower's quality, especially for those who have limited credit history.

Success of Project Cyclops

Project Cyclops - L&T Finance's underwriting engine - will go live with personal loans this month and will be extended to mortgages and micro loans next year, Sudipta Roy, MD & CEO, L&T Finance has said.

Roy and his team are convinced about the success they have seen with two-wheeler loans, tractor loans and SME loans. Project Cyclops is L&T Finance’s proprietary underwriting engine, built ground up by the NBFC. This was one of the first projects that Roy initiated when he took charge in July 2023, eventually taking it commercially live in June 2024. Since then, there have been three iterations to the model and Version 3.0 of Project Cyclops can process 1,400 transactions per second as against 100 transactions when the model was first put to use.

“When we started building ‘Project Cyclops’’ we looked at a couple of initial sources of alternate data and built some scorecards. It ranks ordered beautifully. Alternate data is not only in terms of UPI data, but in terms of risk scorecards, affluence indicators, and income indicators. It’s what I call ‘trust signals’ and whether the signal is weak or strong is the question,” Roy said.

“The two-wheeler is very notoriously difficult to underwrite. The bounce rates in two-wheelers used to be 20 percent plus for us as is with the industry. Now for the ‘Project Cyclops’ underwritten cohorts, it is down to about 7 – 8 percent. We have not dropped volumes. We were No. 3 in the market then and now.”

Read More: Applicative AI and 'techno-managers' will drive future BFSI winners, says Sudipta Roy of L&T Finance

From Project Cyclops to Project Nostradamus

For now, the model works best with urban customers because for rural customers the density of digital data is still evolving. “Our risk costs are pairing out, collection is completely cleaned up and there is a lot less stress on the system,” said Roy.

With technology gradually becoming strong at L&T Finance, the company aims to fully automate the entire credit onboarding and credit administration process. “There will be human supervision on the vitals, but the actual heavy lifting will be human independent,” Roy explained. It doesn’t stop there. Project Cyclops, an on-boarding technology gave wings to the next tech application for the lender – Project Nostradamus. “When the customers come in they are underwritten through ‘Project Cyclops’. Customers are monitored through ‘Project Nostradamus’, which is a fantastic vital monitor. It can point out a particular pin-code to a cluster of houses where things are going wrong, or a dealership where things have started going wrong etc. It is intuitive and drillable and it’s very difficult to go wrong if you have as powerful a tool as that. Our objective of building these automated tools is to make monitoring very independent and human agnostic,” Roy added while going through the sequence of tech applications in the lending process.

Automating credit monitoring

Next in the process of automation for L&T Finance is automating the loan monitoring process. “That is another 18 to 24 months’ journey. We call it ‘auto-correcting algorithms.’ When an algorithm sees that something is going wrong, it will feed back into the on-boarding algorithm and signal that things are going wrong and throw up a few parameters to be taken. It will send a notification to the monitoring team,” Roy explained.

Roy said the name of the project would be revealed soon. “Giving a name makes an inanimate project possible. It builds ownership in the team,” Roy said. The project which began with 80 engineers, now has close to 430 techies working on it. “We are adding one new technology floor every six months in our tech centre”. In fact, as a touch of personalisation, engineers working on these projects wear hoodies with pictures of ‘Project Cyclops’ at the back of their t-shirts.

Financial benefits

But for L&T Finance and Roy personally, beyond the hoodies and excitement around it, Project Cyclops and Nostradamus deliver in terms of numbers as well.

“Project Cyclops will improve profitability. The first view of that will be available in the March FY26 quarter,” said Roy adding that estimated credit losses of the lender is likely to get recalibrated on the basis of the performance demonstrated so far. “That should have a positive impact on our P&L”. On a holistic basis, L&T Finance expects the overall impact of all these tech-initiatives to play out over the next 18 - 24 months. As a result, L&T Finance would be well on track to achieve what it’s aspiring to build in the last two years – a cycle resilient business.

“If our risk cost has to be below 200 basis points during normal times, then in cycles it cannot go above 100 basis points over this normal rate. During inclement cycles it can be 300 basis points,” said Roy. “Financial services companies have to get into the discipline of building cycle resilient business because if the business gets impacted by a cycle, it takes 3-4 years to build it back, which is a huge waste of time, effort and energy”.