2. Topics
The following aspects of loan origination system must be agreed:
• Type of Loans that will be supported
• Loan application and review stages. We will take some user journeys and we will review.
• Decision on Approval mechanisms
• Roles – Static or Dynamic
• Application Type – Web or Mobile for each persona
• Stages in development of key components
• Underwriting
• Interest Rate
3. Types of Loan
Only Loans for Personal Customers. No SME or Commercial Loans will be considered. Even in Personal
Loans, the loans involving extensive verification will not be supported. We aim to cover the loans that
requires lots of to and fro communication between bank and customer, verification by several
stakeholders and in several stages and also has minimal level of subjectivity in loans offer.
• Unsecured Loans
• Personal Loans
• Salary Advance
• Consumer Durable Loans
• Buy now, Pay later loans
• Other unsecured loans
Collateral loans with minimal Field or Collateral verification
◦ Vehicle Loan
◦ Unsecured education Loans
◦ Gold Loan
4. Personal Loans – Existing Customer
An existing customer with employment type Salaries, holding salary account in the bank, wishes to apply for a loan
through the digital bank app. Being a digital bank, the customer is not associated to any branch.
What customer furnishes in the application process:
• Being an existing customer, all personal details will be fetched automatically. No KYC is required.
• Customer fills in the amount and preferred repayment mode and tenor.
• Customer should upload salary slips[Can we get rid of salary slips? Yes, If we have captured the employment in customer on-boarding
and capture the inflow]. Outstanding liabilities can be obtained from CIBIL(or can we ask customer to enter?)
Parameters that the bank consider to take a decision:
Credit-Worthiness: CIBIL Score. This is the decision of Financial Institution for Stage 1. This will be decided by AI7 in future.
Repayability: Max amount and Max Tenor for a loan is decided by the Financial Institution.
Banks may use any of the following criteria(Loan assessment/approval Criteria)
◦ Average balance maintained for last 6 months(If the customer has been a customer with bank)
◦ Net Salary after Taxes – Outstanding EMI Liabilities > Personal Loan EMI amount + a factor for monthly Expenses
◦ Ratios – EMI/NMI, Debt to Income Ratio etc.
5. Personal Loans
Traditional Bank Approval Process: For a salaried and existing customer, the bank will not do residential
verification or employment verification. The key step in these type of loans is the underwriting.
Underwriter does the following:
◦ View extracted CIBIL score and calculated ratios
◦ View the interest rate
◦ Check whether there needs to be any exceptions that needs to be done
◦ Underwriter approves the loan.
◦ If there is no exception, we can get rid of the approval process
Disbursement
• Can be a NEFT payment.
Underwriting Approval Disbursement
Application
Creation
6. Salary Advance – New Customer
New Customer signs up in the app to apply for salary advance.
Customer Onboarding:
Video KYC will be done once the component is available. For NBFC, an account opening
component can be done with eKYC.
Customer has to fill in the personal information for creation of customer profile in the system.
For loans, the customer must enter
Underwriting:
As with Personal Loans, the customer’s credit worthiness and repayability is assessed.
• Credit Score: CIBIL score based, will have lesser thresholds as the tenor is shorter
• Ratios and Financial adjudication
7. Salary Advance – New Customer
• No difference from Personal Loans.
• Approval can be gotten rid off
• Digital Signature
8. Vehicle Loans
Customer Process
Customer makes an application with vehicle details, some banks may require pro-forma invoice.
Banks do underwriting and disburse the money to dealer, it can be a DD or NEFT transfer.
Underwriting Process
Apart from the verification of purpose, the rest of assessment criteria is same as for other Loans
on creditworthiness and repayability. Here the vehicle should be captured as collateral and this
will be done once the disbursement is done and RC book has the hypothecation.
9. Roles
• Different banks have different roles and processes with regard to loan review. Our app will not offer
complex role building feature in the app.
• Our objective is to build a fixed, simple approval process.
• In LOS, there will be just 2 roles – Underwriter, Approver.
• An user can have both underwriter and approver roles
10. App Type – Mobile or Web
In Loan life cycle, the following actors are involved.
• Applicant – The mode of creation of application is mobile.
• Bank Credit Team – Mobile or Web.
• Agents - ??
To be Decided:
• Will Bank Credit team have a mobile app or web app for their underwriting activities?
• Are we building any app for agents?
11. Stages
As a product, we need to define the stages for the following aspects:
Underwriting method(Product Master will hold all the product level details. It will contain underwriting details too)
Stage 1: Manual underwriting – Ratios will be calculated based on the input parameters. CIBIL and KYC can be manually
done or can be automatically fetched.
Stage 2: Automatic underwriting – Automated Provisional underwriting outcome and a simple approval process.
Stage 3: Implementation of AI7
Interest Rate Determination
• Stage 1(Before AI7): Simple parametric model based on CIBIL score, age, Income, Ratios, Employment Type etc. Based on these
parameters, a score will be generated. User will be able to define interest rates for score slabs.
• Stage 2: Assumption – AI7 gives us a score or probability. Based on the outcome, interest rates can be defined.
Integration with CIBIL,eKYC,NACH - TBD
Fees
• Loans which may require interim collection of fees will not be done.
• If Processing fees are applicable, that will be deducted during the disbursement.
12. Assumptions
No branches or hierarchies will be present in the system. The whole bank will be treated as one
entity.
No Provision for negotiation of interest rates. If a person applies for a loan, the person will enter
the following:
• Amount
• Tenor(if repayment is EMI based)
Interest rate is assigned by the system. That cannot be changed. If the tenor is too small for the
appropriate EMI, the loan will be rejected.