In the post-pandemic era, banks and other lending institutions are in a challenging position with higher volumes of non-performing assets, increasing default rates, and reduced consumer spending, leading to reduced profits. However, to kick-start the economy, the financial service providers must upscale the credit granting process with an automated loan processing system. This is, however, easier said than done.

There are several hiccup’s like:

• How to be operational and deal with customers  and serve them when face-to-face contacts are not possible,
• How to reassess credit underwriting,
• How to handle the situation when borrowers who have been granted moratoriums do not provide repayment data?
• How to deal with the absence of off-book loans data?
• With the pool of borrowers (with good credit quality) shrinking, how can one enable disbursements of new loans in the future less risky?

Banks and other lending organisations are already faced with mounting pressures of manual processing of loans resulting in increased labour costs and backlogs of files that prevent the closure of loans on time. Added to this are several of the hiccups mentioned above.

Though there is no quick-fix solution to all these problems, one technical aspect can relieve all these problems: a strategic loan automation process or automated loan processing. An automated loan processing system offers benefits to lenders and borrowers alike and is essential for lenders to remain competitive and profitable in the present world.

What is Automated Loan Processing System?

An automated loan processing system is a solution that is based on software that uses the latest cloud and web technologies to digitise and automate all stages of a loan cycle. Unlike its legacy system, the automated loan processing system offers a quick processing mechanism and eliminates the need for paperwork or face-to-face contact. As a result, it helps streamline the loan system by quickly identifying the applications that meet the lending criteria, underwrite efficiently, and promptly fund the loan. It also enhances the overall decision-making accuracy. In addition, an automated loan management system offers better security features plus a 24×7 online support system, thus lending a new concept to loan management.

How does Automated Loan Processing System Benefit Lenders in Loan Disbursal and Closure?

Given that today’s customers are more demanding and knowledgeable, if a lending organisation cannot process the loan application within a specified time, the customers can quickly switch over to another organisation that is more quick and efficient in disbursing loans.

Lenders are thus compelled to offer convenience and speed to their customers to maintain their loyalty. An automated loan processing system helps lenders to serve their customers quickly and more efficiently and also minimises the high cost of manual data entry.

The key benefits of an efficient loan management solution include:

• Lower processing time by way of parallel loan application processing and optimal workflow distribution
• Better management and tracking of Documents
• Better accuracy of data entry
• Enhances customer satisfaction due to quicker response time and better product offerings
• Effective compliance with regulatory requirements
• Better audit trails and tracking minute details.
• Lower turnaround time
• Better handling of fluctuations occurring in loan volume

Thus, automation lowers the cost per loan and enables one to process more qualified loans, giving lenders the much-needed competitive advantage in today’s dynamic state of affairs.

According to a survey by Nomis in 2020  (whose respondents were located in the United Kingdom), pricing and convenience still seem to be the top drivers in deciding on a loan provider. Most lending institutions are pressed by the need to offer services remotely, mitigate risks and enhance their profit margins.[1]

A complete analytics-oriented and digital-driven loan management system can help alleviate these issues significantly. Unfortunately, attempting to digitise the entire loan origination cycle in one go thoroughly may not be possible due to legacy software issues. However, one can gradually apply automation in phases.

What makes Automated Loan Processing System Possible?

Automated Loan Processing has certain key features and efficient software that turn the arduous task of the entire loan management process into a breeze. The central concept is that a successful end-to-end automated loan processing system like Finezza helps create a financial ecosystem.

A financial ecosystem has a competitive advantage over traditional platforms that are stand-alone independent systems. These stand-alone systems do not have a common technology and cannot inter-communicate amongst themselves, leaving various units separated. On the other hand, a financial ecosystem is a battery of high-tech fintech solutions that consolidate into a common single platform that manages the current receivables and safeguards old pending debts from going bad.

While automated loan processing can facilitate digital onboarding of customers through its software, one can customise it with lender-defined rules that can automate the next step, like screening applications into ones that require more processing and those ready for decision making.

More advanced automated loan management platforms are also available that can pre-populate customer information within the primary platform. In addition, AI-enabled digital loan processing systems like Finezza can help streamline and automate customer communication like repayment status, EMI’s due, dispute resolution for NBFCs and banks, and so on. All these help in better customer engagement and loyalty.

Automating key stages of the loan origination system mentioned below makes it possible to safeguard that risky data is subject to ensure that risk data is subject to robust governance and control.

Credit Analysis

How can automation make it possible to play a helping hand to the credit analyst to create accurate financial scores on which risk assessment and lending decisions are made?

The present-day advanced loan origination software has enhanced technology that allows the lender (with respective permissions) to extract the required financial data needed for a credit risk assessment from the accounting software, income-tax returns, and other documents.

Automation tools like optical character recognition (OCR) and machine learning methodologies help read the borrower’s financial information (given by the borrower) and then map it into the accounting charts in the income /expense statement, cash flow, and balance sheet.

This helps the lender instantly share the credit score with the borrower and arrive at a decision within minutes. Automated financial spreading tools like the probability of default and loss given default tools can help deliver instant essential risk metrics that help in loan assessment.

Covenants and Monitoring

After the loan origination process is done, the asset itself must be managed and monitored for risk on a quarterly, annually, or even a  monthly basis. One of the challenges in this step is streamlining collecting financial data to satisfy the covenants, ticklers, and policy exceptions. Tracking in such cases can be risky and inefficient if done manually.

An automated covenant/tickler concept offers the much-needed mental peace that information is collected without fail on time through various in-built alerts. For example, automatic notifications pop up if there is no appropriate documentation or any covenants are not met. One can also apply different testing tools to alert an impending breach via flagging or dashboard alerts.

Portfolio Risk Management

A powerful rationale behind automating the loan origination process can be attributed to enhanced data integrity, lineage, and governance that comes with a best-in-class financial ecosystem.

Automated loan processing helps inaccurate measurement of the loan portfolio and offers various cost benefits as well. For instance, overstating risk-weighted assets in the balance sheet may incur a substantial direct cost. All these can be solved with an efficient automated loan management process.

Conclusion

Automation has increased the efficiency of various lending platforms. The lending landscape is changing, spurred by the emergence of more technology-enabled competition and better cloud-integrated platforms. Lenders need to recognise the importance of automating their process in terms of cost-efficiency, time-saving, better data integrity, and a powerful analytical tool. While automation can pose some challenges initially, doing so in a phased manner can enhance the institution’s brand value.