Loan Origination Software (LOS) / Digital Lending

The Newgen LOS solution offers a queue-based workflow approach for initiating and completing the application or performing relevant tasks and activities. Each user within the process can have access to their queue. They can log in and see only work items assigned to them, or all users of the same department can view the work items in a queue based on the bank’s requirements. The queues are rights-based, allowing only an authorized user to view and access them. Further, filters may be applied so that only certain users see specific items in a queue (e.g., loan requests under $1 million). Each application moves from one user to the next within the process flow. As soon as one user completes an application, it goes into the queue of the next user/department as defined within the application workflow.

Newgen’s consumer loan origination software includes dashboards or reports that monitor key performance indicators such as loan cycle time, performance (time) relative to expectations, and office production forecasts.

The solution has a built-in business activity monitoring tool with in-built productivity and process metrics. These reports can be functional, operational, or investigative. While Newgen will configure a set of reports for the bank during the implementation cycle, any new report can be easily configured in the solution using the report designer wizard. No programming effort is required to create these reports.

Reports can be in the form of bar charts, pie charts, or tabular reports and are displayed on dashboards. These are drill-down reports that provide critical information about the performance, work item completion rate, bottlenecks, etc. Also, multiple filters can be created for different reports to create ad-hoc reports based on date, month, year, branch, line of business, etc.

The solution leverages the underlying low code process automation framework (BPM) to automate the loan origination workflow. It supports loan value-based approval, parallel (committee-like), and sequential (chain-like) routing of the loan request to the appropriate lending/credit authorities.

The routing and distribution of loan requests can be done manually or automatically based on business parameters such as loan value, customer relationship, total exposure, risk rating, etc.

An approval matrix/lender tree will be configured in the master data management of the proposed solution as per the bank’s requirements.

During the entire process, the solution maintains a detailed audit log that records all actions, changes, etc., made by the bank’s user, along with the username and date/time stamp.

Yes, the Newgen LOS provides a customer portal for the online initiation/application of a new loan request. The online initiation is an extension of the financial institution’s website and is tightly integrated with the underlying LOS platform. The online initiation is configured as per the branding guidelines of the financial institution.

Newgen LOS solution allows for auto-decisioning/straight-through processing of loan requests that are based on meeting the parameters/checklists defined by the bank. By leveraging the underlying low code process automation platform, requests for credit/loans can be routed through different workflows based on the request type, loan amount requested, entities, etc. For example, there could be a “no-touch,” “low-touch,” or “high-touch” type of approach to requests. If all the bank’s defined parameters are met, a loan can be completely approved and booked with no manual intervention, or if certain criteria are not met, then the loan will be routed to the required queue for processing.

Newgen’s consumer lending software integrates with Topaz Systems, LexisNexis, IMMeSign, Experian, Wolters Kluwer, Compliance Systems, CoreLogic, RIMS

Typically, Newgen has seen that once a consumer account is opened, the new customer is onboarded into the core. If the bank views onboarding activities as a separate process/requirement different from this, Newgen would need a more detailed understanding of the bank’s consumer onboarding process. Newgen will work with the bank during the implementation process to align the solution to the bank’s specific requirements regarding consumer onboarding.

Newgen’s account opening and loan origination solutions are available on the cloud and on-premise.

Newgen’s solution can support each of the loan types listed below. Further, the solution can be configured so that the workflow for each loan type will adhere to the financial institution’s specifications.

Personal loans, Credit cards, Direct auto loans, Shared loans, Secured loans, Unsecured loans, Personal line of credit, Overdraft line of credit, Retail loans, Small business loans, Commercial loans.

Yes, Newgen integrates with different credit bureaus such as Experian, Equifax, etc. It allows for different models to be used by product origin.

Digital lending, as the name suggests, implies lending through an electronic mode. It’s simple! In digital lending, whatever was previously done manually through physical movement of files, now graduates onto a digital medium. So digital lending is nothing but the automation of the manual lending process.

This lending process automation works remotely using seamless digital technology for the entire loan life cycle, right from customer acquisition, lead initiation, application submission, to data entry, credit assessment, loan approval followed by document generation and execution, loan disbursement, subsequently customer servicing, and even collections.

The degree of automation can vary from complete Straight-Through Processing (STP) to near STP to Assisted Process. Thus, digital lending involves a move from Physical to Phyigital to Digital!

Do you have a strong reason to switch to digital lending? The answer is yes! It’s a win-win for both, the lending institution, and the borrower entity.

For the lender, digital lending means reduced operational costs, transparent and reliable processes, and better decision-making. For the borrower, it means hassle-free and faster doorstep dispensation of loans.

Whether you are a bank, an NBFC, or any other financial institution, digital lending makes your lending mechanism a paperless and faceless process which can help you achieve faster processing and transparent decision-making. You can thereby eliminate human bias, manual errors, and any logistic delays. Digital lending can also help you bridge the operational silos and unify the front and back offices.

The digitization of the lending process involves the adoption of technology for authentication and assessments. Some commonly used digital channels that are required to achieve this automation include web-based platforms, mobile, and tab applications, and a robust lending system.

The Lending system works through active integration with various internal and external systems, which serve the information requirements for credit assessment and diligence checks and hence reduce paperwork to minimal. With system-generated eligibility calculations, risk scorings, and automatic compliance checks via rule engines, it significantly reduces the processing time to achieve accurate results. It also automates the application flow and enables 24/7 real-time movement from one process stage to another.

Yes, it is. If operated from a trusted site or a reliable platform, digital lending is as safe, if not better, as the manual process. However, one does need to be vigilant of any unauthorized counterfeit applications before they commence their journey through the digital mode or part away with any confidential information.

These false applications can gain access to your device and steal your personal data, which can then be misused for committing financial and non-financial criminal acts. Even the traditional manual processes are fraught with risks if you get involved with a rogue agent. In such cases, any misuse can result in both a data loss and a financial loss.

Yes, it is. The regulations in digital lending are geography specific. Mostly, this form of lending is regulated by the central bank of the respective country. For instance in India, specific guidelines for digital lending have been laid down by the Reserve Bank of India (RBI). These guidelines aim to protect the interest of the end consumer and ensure fairness and transparency in the whole process.

As a mindful borrower, you can acquaint yourself with these guidelines, and your rights and duties from the respective regulator’s website. As a compliant lender, you would need to ensure that the guidelines are effectively implemented and reviewed over time.

• Verify the genuineness and credibility of the lender
• It is preferable to opt for a regulated entity
• Understand the main terms of the contract and try and read the fine print to avoid any surprises at a later date
• Cost in terms of fees and charges and any applicable penal provisions should be clearly understood and agreed upon in writing
• Compare the offerings, evaluate, and decide accordingly
• Maintain a healthy credit history to avail best offers
• Apply only through trusted sites
• Take your due time to decide
• Avoid any unofficial channels/agents
• Don’t share your login credentials over any platform
• Don’t get carried away by any enticing short-term offer
• Refrain from taking multiple loans in parallel
• Avoid cash payment of charges/fees
• Avoid any physical paperwork

Be Smart, Go Digital!

Commercial ending is a debt-based funding arrangement that a non-individual business entity enters for the purpose of –

1. setting up the business,
2. running the business on a day-to-day basis, and
3. undertaking trade transactions

It is a financing arrangement between a business and a financial institution. Hence conventionally, the borrower here is a “non-individual” entity as against an “individual” in the case of retail lending.

Different types of entity include –

• Proprietorship firms
• Partnership firms
• Limited Liability Partnership (LLP)
• Private Limited Companies
• Public Limited Companies
• Trusts
• Societies
• Association of Persons

….and more based on region-specific norms

Classification of borrower entity based on the enterprise size: –

• Large corporate
• Mid-sized entities
• Small businesses
• Micro units

The definition of these entities may vary from country to country. For example, in Europe, the categorisation is based on the strength of the staff, annual turnover, and the annual balance sheet size.

Whereas in India, the classification is defined in the MSMED Act (Ministry of Micro, Small & Medium Enterprises) and based on two parameters

• Investment in Plant & Machinery/Equipment
• Annual turnover booked

The different types of commercial lending depend on:

1. Upfront outflow of the banking funds

Fund based – In which there is a direct dispensation of funds by the lender to the borrower and the bank needs to keep the funds available based on the time duration of facilities. For example – term loans, OD, CC, LAP, HL auto loans, etc.

Non-fund based – In which there is no upfront outflow of funds by the bank, and only certain paper commitments and binding contracts are entered into. Fund outlay is a contingent event here that may occur at the time of default. For example, Letter of Credit (LC), Bank Guarantee (BG), etc.

2. Purpose of loan

Capex: If the loan is given for acquisition of fixed assets or long-term assets i.e, capex, it is called a term loan (including short term, medium term, and long term)

Opex: If the loan is given for day-to-day operations of the business i.e., to fund the current assets or short-term assets of the business entity i.e, opex, it is known as working capital. For example, Line of Credit, OD, CC, BD, LC, BG etc.

There can also be further sub-classifications based on purpose which include:

• Loans for the purchase of commercial real estate which are known as CRE loans
• Loans for the purchase of equipment which are known as equipment financing
• Loans for construction purposes which are known as construction loans
• Loans for meeting the short-term cash flow mismatch which are known as bridge loans
• Loans for agricultural purposes which are known as agri loans
• Loans for financing the inventory which are known as inventory financing
• Loan by way of discounting of future rent receivables which are known as Lease Rental Discounting (LRD)

From a lender’s perspective, commercial loans require a greater amount of scrutiny and due diligence. The underwriting process is rigorous and extensive since the value of exposures taken is large and the time period for which the facilities are committed are long-term in nature.

In the case of commercial loans, the risk from the lender’s perspective depends on numerous factors including:

1. Credibility of the promoter
2. Cashflows of an entity
3. Regulatory approvals of the business entities
4. Group company linkages
5. Industry dynamics
6. Loan structure
7. Security evaluation
8. Overall exposure with the banking system

The level of complexity in case of commercial financing is significantly higher as compared to retail financing since:

• Both the credit worthiness and net worth of the individual (promoter) and the financial strength of the enterprise in terms of profit & loss and balance sheet, need a thorough analysis to be able to capture the inherent risk factors.
• The role of external environment influences the future potential cashflows and critical analysis of the same is a must, unlike retail finance where the impact is not as significant.
• The securities involved are complex in nature and at times on sharing basis, which makes the LTV (Loan to Value) calculations complex.
• Multiple banks/financial institutions are financing the same entity in parallel and hence the risk of double financing and diversion of funds requires special attention.
• Multiple entities in a group, cross linkages in business, collateral sharing, and investments within sister concerns etc. require special attention.

The role of credit rating agencies is pre-dominant in case of commercial lending. These agencies help to provide a neutral assessment of the risk profile, a future outlook of the borrowing entity, and propensity to default. In the case of high value exposures, such external ratings are mandatorily required from a regulatory perspective.

On account of the above broad factors, the risks involved in commercial lending are greater, as compared to retail and lead to longer processing time. Digitisation of the process helps in reducing TAT (Turnaround Time) and automating certain diligence checks which leads to greater transparency and higher reliability.

The borrowings can be restrictive in nature with stringent terms and conditions, thereby losing the freedom and flexibility to work, which may be required for fast business growth. The non-compliance of terms and conditions can lead to penal provisions. If inadequate finance is received, then the project may face a risk of financial non-closure. Any repayment delay spoils the credit history and gets irrevocably recorded in the various databases, thereby acting as a deterrent to any future borrowing.

Commercial lending examples include Cash Credit (CC), overdraft, term loans, project loans, lease rental discounting, letter of credit, bank guarantee, bill discounting, supply chain finance, etc.

Commercial lending spans across the complete lending lifecycle where a business enterprise approaches a bank or a financial institution with its specific business need. A set of basic information about the business entity, its past history, identity, security, and incorporation documents are submitted to the bank for loan processing. The bank’s underwriting team then undertakes a detailed appraisal, due diligence checks and assessment of the requirements, unit visits, and personal discussion with the promoters and evaluates the various securities offered.

Certain third-party checks are undertaken. Based on the scrutiny of the file, the case is recommended to the approving authority on a certain set of terms and conditions (both commercial and others) and then goes for sanction. After the sanction is done, the execution of documents is undertaken as per the region-specific laws following which the loan facilities are disbursed i.e., made available to the business enterprise. After this, constant monitoring and engagement take place between the lending institution and the borrower on an ongoing basis.

The basic difference between retail lending and commercial lending arises from the fact that both cater to a different set of customer base. While the nature of the facilities may be similar, the scope of services and the level of assessment varies. Let us take a look at the broad level distinction:

Low code automation can help insurance companies in streamlining their processes, reducing manual labour, and improving the accuracy and speed of their operations. This can help in achieving cost savings, enhanced customer experiences, and improved business outcomes.

Mortgage lending is a type of loan raised for the purpose of buying or refinancing a property. These loans are spread over a long-term period and secured by a charge on the property title.

It involves creating a “mortgage charge” over an immovable property to secure the loan.

“Mortgage charge” is a legal term that refers to the right of a lender over an immovable property to secure a loan. This lender can take possession of the property in case of default and recover the loan amount.

In this form of lending, the borrower agrees to pay back the principal amount to the lender alongside the interest, over a given period, in a series of regular payments. The property serves as collateral or security for this loan is set free and cleared of charge at the end of the loan tenor, after the loan has been fully repaid. Mortgage lending can take place for various reasons such as:

1. To purchase a property or any real estate such as a house, commercial property, etc
2. To perform renovation, construction, or maintenance of any land/property
3. To raise funds for other purposes by creating charge over an existing property
4. To discount the future cash flows arising out of a property

In all the above scenarios, the property or real estate in question can either be charged itself to the lender or an alternate/additional property can be given as a security.

A mortgage is an essential part of the home-buying process where the borrower does not have the cash to buy the house upfront. Various government-sponsored schemes are also available for covering larger populations, eligible for mortgage loans, and make their dream homes a reality.

Both individual and non-individual business entities can use this form of lending to own a real estate without having to pay the entire purchase price upfront. Instead the entity only has to pay a minimum margin from their side.

In some regions, mortgages are also known as liens against property or claims on property. If the borrower stops the repayment of a loan or defaults in compliance with any of the terms and conditions, the lender can foreclose on the property. The lender has the right to evict the residents, auction/sell the property, and utilize the proceeds of the sale to set off outstanding loans.

Mortgage loans are offered by banks, NBFCs, credit unions, mortgage-specific lenders, or mortgage brokers depending on the market laws.

The risks associated with mortgage lending are far more severe than the risks associated with conventional loans and therefore require an enhanced risk assessment rather than regular prudent underwriting. These loans have a longer tenor and a greater reliance on property as collateral comfort.

In this form of lending the external factors related to the industry play a significant role in deciding the health of the mortgage portfolio. From the swings in the housing market, to real estate prices, interest rate movements, and even the rate of unemployment, each have an instant impact on the propensity to pay.

In addition to the external fluctuations, there is also a huge operational risk related to the collaterals, property title, identification, marketability, distress sale valuations, possession issues, tenancy, and more.

Additionally, the regulatory compliance is also more stringent and complex in terms of transparency, end-use, monitoring, averting fund diversion, and speculation.

The mortgage lending portfolio is susceptible to all kinds of risks including credit risk, operational risk, market risk, reputational risk, and legal and compliance risks.  Any downturn can have a spiralling impact on the mortgage portfolio.

The different types of mortgage lending include:

• Based on the tenor

The typical term of a mortgage loan is for 15-30 years. There can also be loans ranging from 5-40 years as well. While longer tenors typically result in reduced monthly payments, however, on an overall basis they can also result in an increased interest payout.

• Based on rate of interest

On the basis of interest rate there are fixed-rate mortgages, variable-rate mortgages or interest-only mortgages.

In the case of a fixed-rate mortgage, the rate of interest is locked for a fixed time period. It usually ranges between 2-5 years. During the fixed rate period, any early payment attracts charges (known as ERC or pre-payment charge). Whereas in the case of a variable rate mortgage, for a defined period, such as for 2, 3, or 5 years, the interest rate is linked to a benchmark rate and keeps varying in line with the benchmark movement. Therefore, if the rate drops, the borrower’s periodic repayment amount goes down and vice versa.

In the case of interest only mortgages, the periodic repayment covers only the interest amount, and the principal amount is paid in a lump sum at the end of the loan tenor.

• Based on the purpose/nature of the loan

• Loan for home purchase (home loan/mortgages)
• Loan Against Property (LAP)
• Loan for purchase of commercial property
• Lease rental discounting
• Second mortgage loan
• Reverse mortgage
• Residential mortgages versus commercial mortgages
• Green mortgage
• Joint mortgage

The process of mortgage lending begins with the would-be borrower applying for a loan from one or more mortgage lenders. The application process can be initiated either through online mode, via the portal or lenders app, or by visiting the branch office. This involves submitting basic information about the borrower’s identity and income along with the property details. On receipt of the application, the lender first runs a hygiene check on the borrower’s past repayment track through credit bureaus and also verifies the basic eligibility of loan amount based on the information declared by the borrower.

The mortgage calculator is available for the borrower to get a quick view of the loan amount eligible to him, his periodic repayment amount, and the overall cost of borrowing based on which he can decide on the loan amount and which property to go for.

In various cases, the pre-approval for loan eligibility based on the income is obtained by the borrower after which he finalizes the property to be bought.

Once the first level of scrutiny is completed (or a pre-approved offer is released), an extensive underwriting process takes place at the lender’s end. This includes an evaluation of the property through third-party experts, and financial analysis of the borrower based on income, assets, and liabilities. Once the due diligence is complete, the loan is sanctioned and proceeds to the documentation stage where the borrower signs security documents in favor of the lender. Afterwards, the loan is disbursed according to the contract terms.