It’s easy to get a loan unless you need it.
– Norman Ralph Augustine
The irony of the statement is not lost to most of us. And, if you are a banker, you might already be cringing at the thought.
Here’s a paradoxical situation
As per a research conducted by Cornerstone, (Cornerstone Advisors commercial banking operational review of 10 banks, Q3 2015) Commercial LOS platform is one of the topmost priorities of a bank as it is the most valued item in its portfolio. Having said the above, it is also noted that technology initiatives and process improvement for LOS moves slowly in most banks despite being a high priority item.
Why Lending Technology initiatives needs to be fast tracked?
Banks that embrace technology are always at an advantage, as you need to adapt to survive. In a scenario where customer on-boarding TAT is being reduced from a week to less than a day, banks can no longer afford to solely depend on their dated legacy systems. There is a massive gap between expected/desired change in banking and lending processes and the ability to drive this change.
In 2015 in the US, Commercial and Industrial loans worth $128.93 bn were processed which drives home the fact that lending continues to be a prime area of focus for banks. Given the demand and the competition in the market, banks need to look at and adopt new age technologies that can take care of the compliance aspect, as well as the need for quicker TAT.
Lending is a policy/rules driven process. There are rules and decision logics across various stages of the process including applicant qualification, prescreening, underwriting risks, deviation management and differential pricing of loans; compliance to these rules is an integral part of the lending process. However, credit policies governing lending and bank credit policies keeps changing with the changing economic environment. Therefore, banks face the challenge of adherence to this vast and complex regulatory guidelines which are dynamic in nature and at the same time cater to the demand for a shortened loan approval cycle. Bank legacy systems finds it hard to balance both with their existing manual processes and hard coded policy applications makes the situation worse.
Supercharge agility in lending- Leave the fine balancing act to BRMS
Superior banking experience for a customer is all about responsiveness, and acing agility can be quite a task, especially when it comes to lending activities by a bank. The primary reason for the lag time in loan approvals is the legacy banking systems. Enhancement, if required in the credit policy, sometimes might even take up to a month’s time because such changes require code alteration for these systems.
Embracing technology like Business Rules Management System (BRMS) can address all of the above issues. It is essentially a software application that can complement a BPM system or leverage existing bank systems. It can be used to define, deploy, execute, monitor and maintain the bank credit policies and the myriad rules and regulations governing lending. Its USP remains in externalization of rules & credit policy of the bank from the core banking system, allowing business/credit risk stakeholders to access them anytime, anywhere and modify them without being dependent on the IT team to update changes in the core system which can take days to be coded and reflected across the banking system. The BRMS approach to tackling the changing rules is highly efficient as it cuts short the development and change cycle by 90%. Once the rule set is defined for the bank’s credit policy, it can be consumed by all the channels seamlessly, be it branch applications, mobility or over the portal.
Business Rules intensive applications and situations
- Credit and Loan Approvals
- Eligibility determination
- Compliance and reporting
- Account set up and validation
- Applying for products
- Dynamic pricing and bundling
- Cross-sell and up-sell
- Product recommendation
- Lead generation routing rules
- Customer Insights & Loyalty programs
- Documents Required by the Customer
- Level of Verification to be done
- Risk based pricing
- Regulatory compliance
How BRMS can help banks achieve straight through processing (STP) of loans with risk modeling
SME lending continues to be in high demand and banks are on the constant lookout to mitigate the risks associated with the overall process. Here’s how BRMS can come in handy for risk assessment:
- Using BRMS, banks can quantify most of their risk assessment parameters and their associated weightage. Once the risks and policies are mapped to the BRMS, it automatically ascertains the risk category of loan proposals.
- Banks can also use BRMS to automatically ascertain the management/promoters risk , financial risk & collateral risk
- BRMS can be configured to automate Approval & Authority matrix for the appropriate process flow and routing
- Multi-tiered Deviation Management is also a part of the BRMS configuration that supports the overall proposal creation
By deploying BRMS, banks can expect to reduce cost of operations & enhance operational efficiency by up to 300% and achieve STP in 30-50% of the cases.
Tell-Tale advantages of BRMS in lending
- Faster time-to-market
- Increased rule integrity
- Enhanced agility
- Reduced risk
- Optimized operations
- Increased profitability
- Lower decision making cost
As a banker if you are contemplating that your entire banking system needs to be overhauled with BRMS, then it needs to be clarified that a BRMS is neither an ERP software, banking application or a transaction processing system, nor is it a replacement for your mission critical applications!
A BRMS functions in conjunction with core banking system (hence maximum utilization of your existing investments) or a BPM system and lends agility to the lending process by separating decision logics from business processes and allows stakeholders to manage rules without affecting the processes. It makes credit decisioning process easier by collating all decision parameters- scores, ratios, models, fraud tools, judgmental criteria and policy compliance rules-thereby imparting real-time decision making capability to the frontline staff at the point-of-sale.
Expectations from a BRMS
- Should be scalable and help define critical business policies and procedures as rules
- Must be adaptable for changing rules during run time
- Create rules through logic statements or decision matrices with no need for coding
- Risk decisioning process should be centralized and easily available across sales channels
- Regulatory compliant
- Agile and flexible enough to quickly modify centralized business rules or credit policies to accommodate changing market conditions