You must have heard people saying that taking a loan is a very complicated process. If you also think the same way, then you have come to right place to find the answer of all your queries.
Before unfolding the entire loan process let us understand the structure of a financial institution.
A. HIERARCHY CHART
- 1. Credit Manager: He is responsible for managing complete loan process flow from login to disbursement. He also manages few agencies such as Credit Processing Agency (CPA), (Contact Point Verification (CPV) and Valuation Agency (VC).
- 2. Sales Team: The Sales Manager or Relationship Manager is the owner of this channel. Usually, their team consist of Team Leader, Sales Executives, Tele calling Staff, etc.
- 3. Intelligence Unit: All finance institutions have this confidential wing, which verifies each and every documents-profiles-process flow of their respective organization.
- 4. Operations Department: Post the approval of a loan, the operations team verifies all documents including KYC, loan agreement, PDC/ECS/SI forms, Margin Money Receipts, Invoices etc.
- 5. Collection Team: Only in the case of non-payment of EMI’s, this department comes into the picture. They analyse the defaulter’s profile and give the recommendation to credit for drafting future policies.
B. LOAN PROCESS FLOW
C. BASIC PARAMETERS OF APPRAISAL OF LOANS
- Age: The loan applicants within the age group of 35-50 is the most preferred profile as they are financially stable. When the age of the customer is less than 21, usually another earning co-applicant is taken in the case.
- Nature of business: PSU employees, Doctors and Chartered Accountants are generally offered lower interest rates, because of the nature of their business and stable income flow. The rental, agriculture and income from speculative avenues are generally not considered while calculating the final loan eligibility.
- Internal customer: The customer, who is holding a bank account for a longer term, is offered lower rate of interest.
- Co-applicant: If the co-applicant is working, income of both the applicants will be considered to determine the capacity.
- Geographical Area Ceiling: A financial institution hesitates to fund a person living outside of municipality limits of the city.
- Interest Rate: The interest rate of Secured loan (e.g. Car Loan, Loan against Property, Commercial Vehicle Loan) will always be higher than Unsecured Loans (e.g. Personal Loan).
- Own house: A person living in his own house will always get more weightage while appraisal of the loan.
- Tenure: In the case of the shorter loan term, the case is more likely to approve as the risk factor is low.
- Negative List: Based on repayment pattern of customers, the financial institution makes a list of high-risk profile customers. (Politicians, Police, Drivers, Finance Sales Executives etc). Even if these customers are funded, then the higher rate of interest is charged.
D. Customer Verification Process
- KYC Check: A customer existence is verified through his identity proof and address proof.
- Bank Statement: It is a useful document that helps in checking customers’ average bank balance, cheque bouncing, EMI bouncing, salary crediting in bank account etc.
- Income Documents: To calculate the loan eligibility of a customer, their income proof is asked for. It can be Salary Slip, Copy of Income Tax Return, Form 16, Balance Sheet, Profit and Loss Account, etc.
- Physical Visit: The loan officer will visit all the addresses given in application form (e.g. Residence, Office, etc.). Various names have been given for this activity such as CPV (Contact Pont Verification), FI (Field Investigation), PD (Personal Discussion), etc.
- Tele Verification: A Phone call is made to all the phone numbers given on application form (e.g. Residence, Office, References, Co-applicant, etc.). As a cross-verification process, phone directory and phone bills are also checked.
- CIBIL Score: After doing customer data entry in loan processing software, the CIBIL score is generated. The report will show repayment pattern or previous/existing loans and credit cards. Your loan may get rejected if your CIBIL score is low or you have a default in any loan/credit card in the report.
- Valuation of Asset: In cases of Loan against Property, Used Car Loan, or any other mortgage loan cases, verification is carried out by a separate Valuation Agency to ascertain the real cost of the asset.
E. FINTECH: THE NEXT BIG THING
Evolution of Fintech has changed the way financial institutions were processing the loans. In the future, the loan appraisal will be done on the basis of artificial intelligence, machine learning and deep learning neural net protocols. Moreover, all the activities of loan applicants on social media, search engine, websites, etc. will be tracked & monitored to understand his financial decision making process. We will give you more insights on this matter in our next article.
If a customer’s profile is good and he has demonstrated good repayment habits in past, then he is most likely to get a loan. Even if he is not meeting the criteria, the loan financier will approve the case by taking some deviations. We hope that this article has resolved many of your doubts. If you have any query, you can comment below.