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August 14, 2017by Deep0

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 againstProperty, 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.

CONCLUSION
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 caseby taking some deviations. We hope that this article has resolved many of your doubts. If you have any query, you can comment below.


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August 11, 2017by Deep0

Refashioning Indian Finance
Many variants of Artificial Intelligence (AI) like Robo-Advisors and Machine Learning are already adopted by financial companies outside India. Inspired by these practices around the world, banking and financial service companies in India are jumping in the automation bandwagon at good pace. Having recognized its value, theywant to grab all its possible benefits.Some of them being value addition and cost reduction. Along with this, it can be used to enhance the company’s services and refashion finance in a customer friendly way.

Let us see how the India is making its best attempts.

Software Robotics: ICICI Bank became the first bank in India to introduce Software Robotics on 8th September 2016. It was introduced in over 200 business processes in the Bank like in retail banking, foreign exchange treasury and human resource management and so on.

Chatbot: HDFC Bank tied up with an AI firm, Niki.ai to transform its operations. On 5th March 2017 it launched an artificial intelligence-driven chatbot called electronic virtual assistant (EVA).This will be used for improvingcustomer services by answeringcustomer queries in a faster way.It is India’s first AI-based banking chatbot and tackles millions of customer queries across numerous channels instantly.

Fintech Companies: Many new Fintech start-ups are gaining popularity in India. The main motive behind their launch is the increasing need for molding the traditional banking practices and offer customers a new improved easy to use funding interface. Mobile Wallets, E-commerce, Online Lending Platforms for SMEs and various other types of start-ups areflourishing in modern India. One such company,CapitaWorld, an Online Fund Raising Platform, is using algorithms and machine learning to change the future of the Banking Industry.

The attempts taken are not going in vain. The support of the external environment (government and regulator) is favoring them.

Government Initiatives: The initiatives taken by the government become absolutely necessary when we make changes in a highly regulated industry like banking and finance. The Start-Up India initiative, launched in 2016, aims to lift up the start-ups struggling with unmet financial needs and high competition. The Digital India initiative supports the expansion of digital infrastructure in India. These steps taken in the past few years make it evident that the government is onboard withrefashioning Indian Finance.

Support from Regulators: The regulators are also giving their best possibleassistance. The launch of ‘Unified Payment Interface’ with NPCI (National Payments Corporation of India) aims to achieve the Cashless Society-India’s new dream. Further RBI is planning to regulate the P2P lending platforms and make them register as NBFCs. All these steps are taken to accept the idea of moving on from the conventional methods of finance.

The world now lives on the Internet and it want the financial market platforms to reside near its new home.Fintech Start-Ups are sure to become the next big shots in the industry. AI revolution is taking place all over the world and India is blessed to be a part of it!


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August 9, 2017by Deep0

Whether an individual is applying for the loans today or has applied in the past or will in future, the interest rates may be different. Why? How does a bank set the interest rate for loans?
Following are some of the factors that influence the interest rate on your loans:

1. Base interest rate

The lending industry in your local market can decide whether the base interest rate is higher or lower than the national average.

2. Credit rating

The individual credit score shows how reliable the individual is, and it also represents how responsible you are with credit, it is a big part of the interest rate you pay. If the individual has a high credit score, then he is rewarded with a lower interest rate, because it will be seen as a lower default risk.

3. Tenure of loan

When an individual takes a long-term loan, the level of default risk increases. The bank takes on high interest rate risk. For example, if the bank gives 30 years fixed mortgage at 10% and the bank is borrowing at 7% and over 15 years there borrowing cost rises to 12%, so they could begin to lose money on your loan.

4. Market based factors

Generally, a bank takes into account the economic factors including the level and growth of GDP and inflation. The bank also looks the city’s interest rate volatility –the ups and downs in market rate. It will affect the demand for loan, which can help push rates higher and lower. Suppose an economy is in a recession so demand is low, at that time bank can increase deposit rate and encourage customers to lend, or lower loan rates to incentivize customers to take on debt.

5. Inflation

The high-interest rates curb inflation, but also slow down the economy and low-interest rates stimulate the economy, but could lead to inflation.

6. Cash Reserve Rate(CRR)

It is the percentage of cash deposits that banks need to keep with the RBI on an everyday basis. When CRR is increasing thenit means banks have lesser money to lend and due to that the interest rates also increase as the amount of liquidity in the financial system decreases.

7. Repo Rate

When the repo rate decreases, the banks can avail more funds at a lower interest rate and vice versa. Whereas, if the Reverse Repo Rate increases, banks lend more money to RBI because of the attractive interest rates that RBI offers to obtain the loans.
After accounting for the above factors, the banks or lenders decide their interest rates. As a borrower, one should compare rates offered by different lenders and take the final loan decision.


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August 7, 2017by Deep0

“The major winners will be financial service companies that embrace technology.”

FINTECH can be defined as an amalgamation of the Finance with Technology in the real sense. It is also defined as an “economic industry composed of companies that use technology to make financial systems more efficient”. FINTECH can be seen as one stop innovative technological solutions for all the financial issues coming up in the processes carried out through the technological advancements in the companies, banks, etc.

Financial technology, also known as FinTech, is an industry composed of companies that use new technology and innovation with the available resources in order to compete in the marketplace of traditional financial institutions and intermediaries in the delivery of financial services. Financial technology companies consist of both startups and established financial and technology companies, trying to replace or enhance the usage of financial services of incumbent companies.

FINTECH has transformed the way the business and banking used to operate earlier. . The processes today done are faster, which are much convenient for the employees, accurate, the chances of manual errors have reduced to a greater extent due to which a lot of cost reduction is done, that is proving to be beneficial for the companies and the banking sectors.

History:

Years Achievement
1950 Brought us credit cards to ease the burden of carrying cash.
1960 Brought ATMs to replace tellers and branches.
1970 Electronic stock trading began on exchange trading floors.
1980 Saw the rise of bank mainframe computers and more sophisticated data and record-keeping systems.
1990 The Internet and e-commerce business models flourished.
2008-2016 Global investment in Fintech rose.

Areas where Fintech is being used widely:-

FINTECH – creating Revolution in the Business World:

  • FinTech gives distinctive advantages to its different clients, regardless of whether it is a purchaser or businessman.
  • For organizations, by using considerably quicker, dependable Internet associations, huge information figuring, and portable availability, they are presently ready to venture into complexity, including rich money related programming suites and oversaw administrations that 10 years back would have been much costly and time consuming.
  • More intelligent showcases of data with continuous updates and the bits of knowledge of huge information have given business pioneers unparalleled business advantages, permitting clever organizations to refresh their advertising to exploit ideal conditions.
  • Major changes have been made in the following areas:-
    • Digital Wallets
    • Lower costs
    • The Rise of Millennials

Conclusion:-

FinTech has a bright future. With many new technologies and startup companies expected to reach maturity by 2020, it iss certainly going to be an interesting industry to watch over the next several years.
The future: ‘Things are barely beginning here!’


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August 4, 2017by Deep0

With the emergence of finance sector, the use of a calculator has moved beyond basic arithmetic.

We have prepared a complete list of financial calculators which can help you in making important financial decisions of your life.

LOANS RELATED

PERSONAL

GENERAL


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August 2, 2017by Deep0

The Fund Provider (Banks & NBFCs) boards only a creditworthy company’s debt funding ship. In fact, they board it only if they have assurance that the company’s boat won’t sink on its way to the shore. It (The Fund Provider) assesses in advance all the possible information that is needed; from how much fuel of capital is in the tank, to who is the captain of the ship. One of the most important tools for this assessment is the analysis of financial ratios of the company. A careful analysis is desired to know if funding the company is an opportunity or a threat. So, let us list these ratios and dig deeper into their significance.

DEBT ANALYSIS

Debt to Equity Ratio: Total Liabilities

Shareholder’s Equity
It is also known as leverage ratio or capital structure. It mirrors how much financial risk the company has taken. A debt equity ratio greater than 1.5 shows a highly leveraged company.
Drawback of this ratio is that it includes operational liabilities in the total liabilities. These are account payables, pension obligation, deferred tax liability, etc.

Debt Service Coverage Ratio = Net Operating Income

Total Liabilities
This ratio shows whether a company is able to meet its debt obligations through its earnings from operations in a given year.

The ratio, if less than 1 signifies that there is insufficiency of cash flow within the company. This says that the company might be financially unhealthy and has a higher risk of defaulting. On the other hand, the company might be flexible in its finances and use fresh debt to cover for its existing debt obligations. This is the case for companies lying in their growth stage and requires funds for their business needs.

LIQUIDITY ANALYSIS

Current Ratio = Current Assets

Current Liabilities
It signifies a company’s financial power to meet its current or short term obligations. It judges the liquidity within a company. The higher this ratio, the better it is for the company.

Quick Ratio = Cash & Cash Equivalents + Short-Term Investments + Account Receivables

Current Liabilities
It is another indicator of liquidity within a company. It is way more accurate than current ratio as it eliminates assets like inventories which are difficult to convert into cash. Due to its conservative nature, it is also called the acid test ratio.

PROFITABILITY ANALYSIS

Gross Profit Margin = Gross Profit

Net Sales

Gross profit is calculated by subtracting cost of goods sold from the net profit earned. The ratio measures earnings of the company after excluding the cost of goods sold i.e. how well the company can convert its raw materials to revenue.

Operating Profit Margin = Operating Profit

Net Sales
The operating profit margin shows how much a company earns on each rupee of net sales. It helps in showing a clear picture of the operating efficiency of the company. The company with a high operating profit margin is profitable in its operations.

Net Profit Margin = Net Profit

Net Sales
The net profit margin of a company signifies the overall profitability of the company after deducting all the costs to the company.

Return on Assets = Net profit

Total Assets

This ratio signifies to what extent are the assets of the company useful in generating revenues.

The above are the few important ratios that are calculated to project a company’s financial position and performance. Looking at just one ratio can be misleading. Hence it is advisable to reach conclusions only after analyzing all of them with great care.


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July 31, 2017by Deep0

Once a fund seeker gets the loan and pays off the EMI’s regularly, he feels relaxed because the debt has been paid off. But, this might actually get the borrower into a problem if he has not collected the NOC from the bank.

What is NOC?

  • No Objection Certificate (NOC) is also known as No Dues Certificate
  • An NOC or No Objection Certificate is a legal document provided by thelender which states that the loan has been completely paid off and there is no outstanding amount to be paid by the fund seeker as on a specific date.
  • Thus, it is very important to collect an NOC from the bank once the loan is completed.

Why Do You Need an NOC?

  • When you apply for a loan, you submit certain documents to the lender which remain in his custody until the closure of the loan. It is beneficial for the fund seeker to claim those documents once the dues have been paid.
  • Upon the closure of the loan, an NOC needs to be submitted to CIBIL so that they have the correct credit history. This is important because when an individual applies for a fresh loan, the CIBIL report should state thatthefund seeker doesn’t have any outstanding loans.
  • Ifan individual wants to avoid future discrepancies, it is important for him to collect the NOC. Sometimes, some financial firms may take legal action against him for not having settled the dues.

Steps

  • Once the borrower has paid all the outstanding loan payments, he can write a letter to the lender asking him to return all his original documents, invoice copies, and NOC. Usually, the documents and the NOC are returned to an individual within a few working days.
  • If the borrower takes a Home Loan on an unregistered real estate property, then the procedure remains same as above. However, if the property is registered, then the individual and a representative from the financial institute have to go to the Registrar of Properties office together to get the lien removed and to get an NOC for Home Loan.
  • In the case of a car loan, the financial firm issues the NOC, as well as the RTO form (Form 35). These need to be submitted to the Regional Transport Office and the car insurance company.

Though it is the duty of the lender to issue an NOC, often, financial firms overlook this step. But the borrower should definitely ensure that all the loan closure steps are diligently followed. NOC helps in completing the processquickly.


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July 28, 2017by Deep0

There are many ways to get funding. But when an individual requires funds in an emergency and he does not know how to get them, he typically applies for a personal loan. But somehow the borrower’s eligibilitymay not match with the required criteria. In this case, the borrower can get funded through a “Loan against Securities”.

Loan against Securities

  • It is an overdraft facility in which borrower can pledge financial instrumentslike bonds, shares, and mutual funds and get the loan.
  • It is a loan which isgiven to borrower against the shares, which are held in their Demat Account.
  • The biggest benefit of this is that the borrower can get instant liquidity without selling their securities.
    When one repays the debt he or she gets back the shares from the bank as there is no liquidation of the actual stock units.
  • The following are approved securities:
    • Non-Convertible Debentures
    • Mutual Fund Units
    • NABARD Bonds
    • Demat Shares
    • UTI Bonds
    • NSC/KVP (Accepted only in Demat form)
    • Insurance Policies etc.

Features

Amount–The range usually lies between Rs. 50,000 to 20 lakh.
Tenure of loan – It is taken for a shorter period up to 1 year.
Rate of Interest – 12% – 15%

Generally, Loan Against Securities comes under the Personal Loans sector. The value of deployment in individual shares and bonds gradually increases because the popularity and awareness of such loans are increasing today.

Source: RBI

How does Loan Against Securities work?

All banks have conveyedthe list of shares, mutual fund schemes, LIC policies etc. which they will accept as collateral. These securities are very liquid and highly valued securities. On the basis of the portfolio, the bank will decide the amount of the loan. For example, if the borrower’s stock portfolio for shares is Rs. 50 lakhs, he/she can get a loan up to Rs. 25 lakh against the stock portfolio.

Advantages

  • The borrower isonly pledging securities,he is not transferring ownership.
  • No personal guarantor is required.
  • The interest is only on the amount which he can utilize, and not on the entire loan amount.
  • An individual cannot only borrow against their own shares, he/she can also pledge the shares of their spouse, children (above 18 years of age), parents, siblings, in-laws, grandparents, and grandchildren.

I hope the next time when borrowers look to raise funds for an emergency; they remember that a loan against their security investments can be a better option compared to other traditional avenues.

Our FinTech platform CapitaWorld helps to the fund seeker raise funds in a minimum number of days. For more details please visit www.capitaworld.com.


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July 26, 2017by Deep0

Rajesh is a software engineer working in Ahmedabad. His income has been steadily increasing over the past 5 years. His current monthly income is 80,000. He has taken a Home Loan of Rs. 40 lakh for a term of 15 years and at the rate of 12%. After some time, his wife now wants to renovate the house and his monthly income has increased to 1 lakh. Now, Rajesh has not planned or saved money for this purpose or expenditure. In this case, what can hedo?
Rajesh goes for the balance transfer and top up.

Let us first understand what Home Loan Balance Transfer and Top Up is.

Home Loan Balance Transfer

It is a facility in which a fund seeker can transfer his existing loan from a bank to another bank. The fund seeker usually chooses to go for this facility because the new lender has offered a lower rate of the interest.

Why the fund seeker would opt for Home Loan Balance Transfer:

1. Lower rate of Interest

It can be possible that after some years the rate of interest of another bank is lower or it may be possible that some of the lenders offer lower rate of interest than other lenders.

2. Monthly EMI drop

With a lower rate of interest, EMI is also gradually drops.

3. Credit Score can improve

As the EMI becomes more affordable, the fund seeker can avoid delay in payments. Thus it can improve the CIBIL score.

As discussed in the case about Rajesh; suppose his outstanding balance now only Rs. 35 lakh and another lender has provided 11.5 % rate of interest. He can now transfer his outstanding balance from the first bank and pays 11.5% rate of interest for the amount of the 35 lakh. This whole procedure is called Home Loan Balance Transfer.
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Home Loan Top Up

When the fund seeker has a regularly serviced loan with a certain bank and he needs an additional loan, it called top up.

Rajesh requires an additional amount of 20 lakh and as per discussion in his example. Along with his increased income;

New eligibility – 54 lakh

Top up loan – 19 lakh (New eligibility – Outstanding Balance)

Thus Rajesh has taken top up loan up to 19 lakh at the rate of interest 11.5%.

4

So, concluding from Rajesh’s example, we can say that the whole process was beneficial for the fund seeker as well as the banker. Nowadays non-bank lenders are playing a vital role in the financial market, as they are not using traditional credit appraisal system. Our FinTech platform CapitaWorld is one of them. We are the facilitator of the fund seeker and fund provider. CapitaWorld offers a number of benefits including one form for all banks, no upfront charges and much more.
For the more details visit www.capitaworld.com.


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July 24, 2017by Deep0

Getting Tracked by the Digital Footprints.

FIRST TIME BORROWERS WITH NO CREDIT HISTORY?

YOU ARE TRACKED BY YOUR NON-TRADITIONAL DATA

The digital footprints you leave while your routine works on the computer, social media interactions, and -likewise can help you qualify for a loan application you might have made with banks.
Have doubts? Let us make it clear.

For the lending companies, there are a few things they would like to verify before they give their money in the form of investments. They would like to know who you are and whether you are a reliable person or not. And when they say a reliable person, they mean someone whom they can trust, whom they can lend their money to and expect it to be repaid by them within the maturity period.

People residing in small towns or young college graduates find it difficult to raise funds mostly because they do not have a sound credit history and banks would weigh them as a risky customer to fund.

To sort out all these situations faced by borrowers, lenders have started using an alternate method to screen a loan application over and above the traditional method of accessing – amount owned, payment history, credit mix, and past payment history. They use non-traditional data like data they leave behind while surfing online, making online shopping, online transactions, etc.

Some insights that affect the creditworthiness using the digital footprints are listed below. Let’s see how you get judged upon your digital footprints:

1. The very first time you enter a lender’s website, you are being tracked:
a. If you jump directly to the sign-up page, you are considered as an applicant who is in need for money.
b. If instead of typing your name, you copy it from somewhere else; you are put into a fraudulent bot.

2. Your post says you party frequently, lenders consider you spending more time partying than at work sidelining you as a highly risky borrower.

3. You are judged on the basis of your tags, posts, comments, friend lists, their behavior, lifestyle, and habits.

4. The lenders do not screen personal private messages, but will show them how frequently you use the word – Please” or ‘Kindly’ in your messages or chats, giving them insights that you are a kind of person who would apparently not pay back or pay back the money.

5. Be aware of your each comment, posts; frequently stalking or trolling someone unnecessarily can put you in a troublesome file for the loan you have applied.

6. Your close friend has a history of default and you have a frequent conversation with him; you are being constantly watched from behind and your credit history is going to affect a lot.

7. If your education background is Computer-Science, there are perks to it. Some lenders have a positive side on you considering you as there is a notion that you will pay back.

8. Not only your social platform; but even a simple text message of amount credit, cash transaction, transaction details from even your phone, is been taken into consideration.

9. Your posting habits like – misspelled words, grammatical errors or posts in capital letters brings out insights about your education and earning power of the applicant.

10. Your professional career is directly linked to your credit assessment. If you have a high volume of short-term jobs, or a random change in job type – it is derived that you are surely not a person of financial stability.

11. Tell your information to the lenders about how quickly you respond to your customers, solve their queries, doubts, and likewise.

12. Some lenders also consider an average credit score of your friend list, or people having similar characteristics as of yours and judge your credit score based on that.

And after knowing all these if you start energizing your social platform, activate frequent posting, commenting; this won’t help either. This will not give a good insight to the lenders – they would consider that you are trying to make a sudden spike in your activity just for the sake of your credit accessibility.
Hence, from now on, better be cautious before you make a friend on the social platform, or post on the platform; lenders are constantly trying to find your digital footprints to access your repayment capacity.