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Case Study-Decision Trees 2

The IDIDI Bank wants to tighten its credit policy to reduce high default rates on consumer loans between 2 to 5 years. An analysis of past loan data using a decision tree shows that applicants with monthly income less than 1.2 times the loan installment or more than 2 loans have higher default rates. It also found higher risks for those with income less than 2.5 times the installment or who previously defaulted on a loan.

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227 views1 page

Case Study-Decision Trees 2

The IDIDI Bank wants to tighten its credit policy to reduce high default rates on consumer loans between 2 to 5 years. An analysis of past loan data using a decision tree shows that applicants with monthly income less than 1.2 times the loan installment or more than 2 loans have higher default rates. It also found higher risks for those with income less than 2.5 times the installment or who previously defaulted on a loan.

Uploaded by

jiten
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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IDIDI Bank wants to improve the profitability of its consumer loan

department. The bank has seen a high default rate on its loans between 2
to 5 years of tenure and wants to tighten its credit policy. You have pulled
the data for all bank loans in the last 2 to 5 years. In order to analyze the Decision Tree
data you have created the following decision tree.
Population: 10000
Present your recommendations to the IDIDI consumer loan VP based on
Good: 9500
your interpretation of the analysis. Bad: 500

Data Description: Yes No


Income>1.2
•Good – non-defaulters *
Population: 9800 installment Population: 200
•Bad – defaulters
•Income>1.2*installment – Was the applicant’s Good: 9450 Good: 50
Bad: 350 Bad: 150
monthly income > 1.2 times the amount of monthly
<2 # of other >=2
loan installment (Yes/No)
loans?
•# of other loans – Does the applicant have other
Population: 8800 Population: 1000
loans (<2,>=2)
•Income>2.5*installment – Was the applicant’s Good: 8550 Good: 900
Bad: 250 Bad: 100
monthly income > 2.5 times the amount of monthly
loan installment (Yes/No)
Yes Income<2.5 No Yes Default on a No
•Default on a prior loan – Has the applicant defaulted * prior loan?
on any other loan on record? (Yes/No) installment
Population: 400 Population: 8400 Population: 150 Population: 850

Good: 200 Good: 8350 Good: 70 Good: 830


Bad: 200 Bad: 50 Bad: 80 Bad: 20

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