Even as the world has moved towards enhanced automation, loan origination at most financial institutions has largely remained a manual and time-consuming process. Vahana Cloud’s no-code platform reduces the time required for processing loan originations drastically.
It provides a seamless experience between customers and the sales team through a mobile application. It also creates an automated workflow that helps the borrower get in-principle loan approval in less than 10 minutes. Lastly, the platform lets loan origination teams release new products in as little as a week.
In this blog, we look more closely at how Vahana Cloud’s loan origination system cuts down the time required for processing to one-third of its usual level.
Understanding Loan Origination
In simple terms, loan origination is the set of steps between the time a borrower applies for a loan or mortgage and the time the funds are released by the financial institution.
This is different from loan servicing, which includes everything that happens after the loan is disbursed.
In essence, it has the following steps:
Application Process
This could either be done directly by the applicant (self-service), agent-assisted, through a broker, or through an agent who is present at a physical branch of the bank.
Today, the most rapidly growing form of application process is simply the online self-application process.
Loan Processing
This includes all activities that happen between the application and disbursal. The steps involved can be:
- Credit risk assessment
- FI/RCU
- Pricing
- Appraising the collateral
- Document preparation
- Underwriting
- Funding
- Disbursal
- Product development
Apart from the primary activities of the loan appraisal team, there are cross-selling and up-selling activities that also happen during the processing.
Challenges With Loan Origination and How Vahana Cloud Can Reduce The Grunt Work
One of the key problems with loan origination is that a large number of financial institutions and banks continue to use outdated pen and paper methods for it.
Vahana Cloud’s automated loan origination process has been proven to cut down on the time taken to process loans. Let’s look again at the various steps of the process and how Vahana Cloud can help.
Application Processing
Today, application processing is a cumbersome task. There’s a lot of form-filling and submission of physical proofs involved. This is both time-consuming and prone to human errors because each time a data entry is made, there is a risk that some information might be entered incorrectly.
Vahana Cloud offers a ready-to-use, customizable customer onboarding mobile application. This can help a banking or financial institution seamlessly capture data and even incorporate document verification with the click of a button.
Banks and FIs can implement KYC verification financial checks and extract credit data about the borrower in nearly real time. It also eliminates the need for unnecessary paperwork and prepopulates key information such as name and address, which reduces the possibility of errors in data entry.
The app also seamlessly integrates with other systems such as the CRM and risk departments, thus becoming a single source of truth for the entire organization about the applicant’s key information.
Put together, this means that lenders can fill out their applications and get in principle approval on simple loans in a matter of a few minutes.
Credit Risk Assessment
Assessing the risk that an applicant holds and accordingly processing the application and deciding on pricing is perhaps the heart of the loan origination process.
Vahana Cloud provides a fully automated system for credit decisioning and risk assessment.
It can automatically extract relevant financial information regarding the applicant from various sources, such as tax returns and accounting software. Lenders can save a significant amount of time while processing the application. Vahana also provides configurable scorecards that help automate decision-making.
All of this gives the analyst more time to complete the credit check. They can do better data interpretation, run more advanced models for scenario analysis, get an automated idea about key metrics like probability of default (PD) and loss given default (LGD), and so on.
In the long run, this leads to better decision-making, reduced exposure for the bank, and hence significant savings.
FI/RCU
Field investigation is another aspect of the loan origination process that often remains completely manual. Even if it is partly automated through various online portals and systems, these multiple modules are usually not interoperable. This wastes a lot of time for the loan processing team trying to go back and forth between the systems to get all the information in one place.
Vahana Cloud simplifies this problem by providing a single-window web portal for external verification agencies. This includes not only field investigations and risk contentment but also technical, DVR, and legal teams. It creates an end-to-end system so that all teams can view the application as a single unit and all aspects of the application are available in one single data flow.
Document Preparation & Underwriting
Another important but largely manual process at most financial institutions is document preparation and underwriting.
Preparing documents includes getting together and arranging closing contracts for the borrower. Typically, this includes a note that explains the whole application, various types of disclosures, and other parts of the agreement between the institution and the applicant.
Once the documents are prepared, the underwriter goes through the entire application thoroughly and makes the final assessment about approving the loan. This team may have several levels of hierarchies that need to be negotiated to get the final approvals necessary. It takes time to do all of this.
Vahana Cloud provides an end-to-end document underwriting portal. It has configurable hierarchies that automate the process of escalation and help in enhanced decision-making.
Product Development
Vahana Cloud provides pre-built modular components that allow NBFCs to create new products rapidly. This can help them reduce their time-to-market for new products. It also increases operational efficiency and makes the process of creating new products simpler and smoother.
Conclusion
Vahana Cloud’s loan origination system has already been tried and tested by several large banking and financial institutions. It is proven to significantly reduce the workload for the entire loan processing team, cutting down the time required for approvals drastically. It helps increase customer satisfaction and improves the decisioning process, which reduces risk and tremendously benefits the organization.