Is Co-lending The Final Answer to The NBFC Crisis? Let’s find out!

Co-lending or co-origination of loans is considered the next big step to resolve the ongoing NBFC crisis. However, what does it really mean for the lending industry? Let’s find out!

2019 was a wake-up call for the RBI, Government, and the economic experts to focus on the NBFC crisis on priority if the lending industry is to be saved from collapse. 

The IL&FS issue had long remained unsolved, and the drying up of funds from the PSU Banks in the rise of the unearthing of scams led to a tight capital crunch for the NBFCs. 

Banks refusing to refinance loans have cropped up a massive dearth of liquidity. Many veteran bankers including Uday Kotak and Marzban Irani feel that it is only a matter of time before the turbulence in the financial sector affects the entire economy. 

While RBI has tried to elevate the situation by cutting the Repo rate for the 5th time in a single year (2019) to the 9-year low, the government looks hopeful about co-lending as the potential and permanent solution. RBI had already laid out the framework for the co-origination model more than a year ago, but it was around April 2019 that SBI actively started talks with 4-5 NBFCs to roll out its co-lending model. 

What is co-lending/co-origination of loan?

• Co-lending or co-origination of loan is an arrangement between a domestic commercial bank and an NBFC to jointly issue credit and manage loans at the facility level. 
• Co-lending or co-origination of loan lifts the burden and risk of an entire load from the shoulders of a single entity. 
• A bank and an NBFC jointly issue a loan with the exposure ratio being 80:20 of all the risks and rewards between them. 
• Such co-originated loans can only be issued for “priority sector lending”.

What does the Priority sector include?

• Agriculture
• MSMEs
• Export Credit
• Education
• Housing 
• Social infrastructure
• Renewable energy, and others. 

Why is co-origination/co-lending of loans important?

• According to the RBI Master Circular, domestic scheduled commercial banks need to have the total priority sector lending (PSL) at 40% of the new adjusted bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher.
• There are also sub-targets for each sector;, especially for agriculture and MSMEs. 
• However, currently, the banks, which barely manage, and at times incredibly fail to correctly evaluate, assess, and underwrite the credit of the borrowers of the urban PSL category due to lack of resources, have little time and effort to spare for the remote geographies.
• Hence, banks are looking for new avenues to meet the targets without it being a burden on their existing resources, which fits in the co-lending model. 
• It is an attempt by the RBI to ensure the flow of capital to the priority sectors while mitigating challenges by the financial institutions in doing so. 

How will co-lending actually work?

• Currently, there are no RBI guidelines to regulate co-lending. However, it has soon promised to come up with them to systematically establish and run the co-lending model. 
• The entire process of lending- right from co-origination of loans to the loan management/monitoring to the loan recovery and settlement will take place digitally through automation, without any human intervention, as suggested by the SBI in an official statement. 

How many entities in India are already a part of the co-lending model? 

State Bank of India, Bank of Baroda, and the Union Bank of India has already announced their ventures with respective NBFCs. Other banks are expected to follow them. 

Is this really beneficial for the NBFCs?

• From all the discussions it looks like though the model was chalked out due to the rising challenges in the NBFC sector, it serves more as a medium for the big banks to reach to the grass-root level borrowers and MSMEs. 
• However, to deny that NBFCs do not benefit from the entire process would be ignorance. 
• It addresses the major problem NBFCs in India have been facing for a long time- a lack of established systems of the banks to reduce the risk of defaults. 
• With co-lending, NBFCs can exploit the expertise and diligent processes of the banks to issue loans, and also share the risk of default. 
• It also encourages NBFCs to go fully digital with their operations to increase transparency in the ecosystem
• Lastly, co-lending/co-origination of loans boosts the growth, assets, and profitability of the NBFCs without much investment. 

The ultimate goal of the co-lending/co-origination lending model is to eventually bridge the gap in micro-lending between the banks and the remote areas which were otherwise inaccessible without the NBFCs. However, it yet remains to be seen how, what looks so promising on paper, turns out to be on execution.  

Why Loan Management System is the core technology for NBFCs?

A strong core means strong business NBFCs- Loan Management System

While the economy does not seem to stabilize anytime soon, so does the uncertainty of the NBFC sector in India.

In an effort to boost the NBFC sector, Union Budget 2020 paved way for it to become a part of the TReDS, an electronic platform to finance/discount trade receivables of MSMEs through multiple financiers.  

Even though new avenues of business are being opened up for the NBFC sector in an attempt to bring relief, the grounds seem shaky until everything becomes a routine.

 Adapting to the new market, having dynamic operations for deeper penetration, complying with government regulations, without hampering the core business of lending can overwhelm any NBFC.

As tough as the competition already is in this sector, all the companies that fulfill the eligibility criteria are going to jump at first go to make the most of the new opportunities. What we are skeptical about is the balance. The balance between expanding to newer markets, and holding firmly onto the existing one. 

A successful augmentation not just to TReDS, but to any new market depends on how strong the loan management system, the core business of NBFC is. By strength, we mean how autonomously and efficiently can the lending business operate with minimal human interference if your focus navigates towards new opportunities.

If your business runs fine, in fact, thrives when you get your hands off its micro-management, that’s the sign of a healthy business.

 If not, here’s a basic checklist to judge how competent your core is- 

Why Loan Management System should be the core technology for NBFCs?

*Instant pre-approval & application processing:

With a digital loan origination system, one can instantly pre-approve applicants and credit limit to digitally process applications in seconds, thus shrinking the processing time from weeks to minutes.

*Paperless documentation:

Go completely paperless with your document management system. Upload, store, and access all the documents on the cloud from any time, anywhere.

*Seamless workflow engine:

The system should have the managerial capability to assign roles and responsibilities at all levels to ensure a seamless workflow that is devoid of confusion, unaccountability, and scope of errors/frauds.

*Ability to diversify on the go:

A good loan management system must cater to consumer demands, and create new markets within the lending industry without the bargain in your existing growth rate, and operational efficiency.

*Monitor operations without micromanagement:

The system replaces many of the manual processes with agile digital operations, thus increasing transparency in business. Hence, one can know about the complete state of any project or application in a few minutes without actually actively working upon it. 

The core of any business needs to be strong for it to diversify and explore new avenues. 

A good loan management software will relieve you of the urge to constantly micro-manage your lending business, and help you venture out with confidence.

It does not just boost the efficiency and productivity of your business, but also makes it immune to maximum human errors and frauds. Not to mention the accuracy, speed, and transparency it brings. If we were, to sum up, all we need to say is a good loan management software is the key to a healthy core of any NBFC business. 

If you’d be interested, do check out All Cloud’s Loan Management suite, designed to automate the entire loan operations of your business.

12 Features That Makes A Loan Management Software Outstanding 2019

                         12 Features That Makes A  Loan Management Software Outstanding!

Digital Lending Report, November 2018, by the Boston Consulting Group (BCG) projects that with the introduction and penetration of India Stack (UPI) in the banking system, 50% of the loan seekers with internet access tend to buy loans online. 

In fact, out of the total population, there are about 55% of consumers with a digital footprint out of which an astonishing 23% purchase retail loans digitally today. 

Loan ticket sizes influenced digitally are found to be marginally higher by 4% in the case of SMEs. In short, the report concludes that Indian Digital Lending is a $1 Trillion Opportunity over the next 5 years! 

One of the major factors that facilitate such humongous growth is that technology has allowed for a reduction of time in processing loans. 

People no longer have to wait for months to get credit. The report studies lending models of various companies, and the average time of processing an application and disbursing loans, when everything is done digitally, in just 10 minutes! 

With such concrete data, it becomes absolute that every lending company needs to go digital. It all starts with identifying a reliable loan management software partner that can understand the nuances of your business, and blend in seamlessly with your existing operations.

Here are a few filters that any software you are considering for your business must go through - 

• Personalized to your requirements 

Though technology has become sophisticated, one shoe size cannot fit all. The software should be able to customize itself to cater to the peculiar requirements of your business operations, and moreover the specific needs of all of your consumer segments. 

• Coming-of-age Tech Infrastructure

  The software should command the least coding expertise from your end. It must encompass modern tech-stack such as API gateway, SOA Enabling, etc. and possess a cloud-based infrastructure for utmost cybersecurity. It should be able to accommodate futuristic technology such as open-bank architecture and update itself without hampering existing operations. 

• Scope for Innovation 

It should be able to pilot new products/services in a relaxed environment. There has to be a defined structure of introducing and implementing new products, services, or processes with minimal effort and time.  

• Fulfill Legal Compliance's

The software should be legally-compliant at all stages of the lending cycle. Implementing appropriate taxes, interest rates, invoice discounting, and other norms as directed by the RBI should be automated.

• User-friendly for Employees & Consumers

 A good loan management software with all its high-end integrations at the back-end, shouldn’t be complicated to be used by the employees and the consumers. A neat lag-free and easy-to-understand user experience and interface are what the software should provide.

• Comprehensive reporting & analytics

The software should be able to fulfill not just current business requirements i.e. the short term goals, but also help the business work upon their long term vision with data-backed reporting and intelligent analysis. 

• Smart Intelligence and Automation 

The software should deploy artificial intelligence to automate the majority of the manual tasks at a lower cost. Automation will make the entire lending cycle secure by eliminating the scope of errors and frauds. The AI-backed analysis will help the company understand its current and future growth prospects. 

• Ease of Delegation 

Even though automation will take care of maximum manual processes, you still need people to handle the overall management. The software should be able to easily introduce, modify, or change the hierarchy and allow for a confusion-free automated delegation of responsibility at each stage of the cycle. 

•  Integrated Accounting engine

Accounting has always been a tedious affair. However, with improved lending operations, if the software offers automated accounting solutions, and allow for seamless integration of other accounting services that a company might use, it would lead to a transparent and error-free accounting process. 

•  Set pre-defined rules

The software must offer scope to implement automated rules for individual products, services, and stages of the lending cycle through a rule engine that will lead to a risk-free efficient workflow without the need to constantly monitor the operations. 

•  Automate Debt Recovery and Collections

Though debt recovery and collection is the end of a lending cycle, it involves various sub-processes in itself that can be completely automated. From sending personalized reminders to customers about due dates to Geo tagging to accepting payments digitally and raising receipts, everything should be automated and regulated by a loan management software. 

•  Reliable Customer Service

Even with all its merits, the software system might face issues and you might need assistance with it. The software company should have a skilled and able customer service that is quick to respond to your queries and resolve them.

Now when you start looking for a reliable loan management software partner, we hope it passes through all the filters we laid out.  By the way, we at All Cloud offer a comprehensive full-suite lending solution that delivers on all of the above features and much more.

You can check out our solutions here - AutoCloud Enterprise-Loan Management Software

RBI Guidelines For NBFC | KYC Guidelines For NBFC 2019

RBI Guidelines For NBFC

RBI Guidelines for NBFC enhance the safety, security and operational efficiencies of all NBFCs the RBI has issued directions on the ‘Information Technology Framework for the NBFC sector’ on June 08, 2017.

• While evolving technology ecosystem and enhanced dependence on technology, analyzing the risks associated with legacy systems and inefficient IT management the Central bank is pushing for better planning and management of Information and data of NBFCs.

• Taking a holistic view of IT and its importance the guidelines include suggestions on Business Continuity Planning, robust IT Framework, Policy formulation, and audit.

• The directions apply to non – deposit taking NBFCs – NBFC SI and NBFC Non-SI. The RBI has very strategically called for all NBFC to form a committee with Senior Management to lead and take a holistic view of the current IT infrastructure, Design and Deploy a sound IT policy that considers requirements, risks and rewards for the company.

• Today Non-Banking finance companies are driving the growth of the country by serving the underserved and unbanked with their extensive network and sound customer engagements. Their growth and profitability need to be linked with the acceptance and implementation of a good software to manage their customers and loans.

• With the evolution of technology from Server to Cloud, desktop to Mobile and DOS to Android a large gap has been created. 

• Many businesses are still dependent on redundant and obsolete hardware's and software like Loan Management & Loan origination systems that fail to capture and process information that is relevant today. 

• Importance of Data and its interpretation of business insights is unchallenged, companies that use data to its advantage are more successful and profitable than those who depend on incompetent systems.

• NBFCs possesses very critical and confidential data whose security can be compromised. 

• The guidelines stress that ‘Information is an asset to all NBFCs and Information Security (IS) refers to the protection of these assets in order to achieve organizational goals’ and very rightly it has advised the NBFCs to frame an IT & IS Policy that considers Confidentiality, Integrity, Availability & Authenticity.

• NBFC should consider developing a system that is safe, secure and smart, a system that not just controls risks but is cognitively advanced to avert risks. 

• Providing access to information to users based on need, creating responsibility of actions by Business Process Management enabled applications, ensuring physical and virtual security of data and maintaining proper audit trails will help them in maintaining data Authenticity & confidentiality.

• Cybersecurity and Cyber crisis management is the most pertinent topic that needs to be addressed while considering IT & IS. 

• With the world over the internet, it is a staple that cannot be avoided. 

• Mobile technology and the sharing of information on multiple systems and locations that enable businesses to harness the power of technology need to be secure. 

• Data needs to be transferred and stored with utmost powerful DB management tools, securing data with multiple firewalls and hosting the data at secured Data Centers like AWS, MS Azure or other cloud data centers should be evaluated for their merit.

• NBFC big or small should invest in a good IT partner that can advise and help them establish a controlled and dynamic environment for growth. 

• With the evolution of cloud technology and secured Data Centers where multiple Data backups and instances can be stored are very useful in creating a sound Business Continuity Plan. 

• Disaster recovery experts are betting on the cloud that promises a very aggressive response time in case of any incident.

• Technology and its optimum use will be the most important growth drivers for any business and in such businesses where data is the only asset you have, and this makes technology the most profit center to invest it. 

• With a robust application, Management can monitor day to day activities, map data derivations to policies and invest time in growth.

• The RBI with these guidelines has created a 2 point agenda for the NBFC one that stresses on Importance of IT & IS and other impresses upon them the importance of the use of IT. 

• With the highest authority making an open call for IT readiness all NBFCs should conduct a comprehensive analysis of their current software and be ready for the future. 

Reference:http://bit.ly/2CxvtAX

Top NBFC’s In India 2019 | List of NBFC Companies

List of Top 9 NBFC Companies In India 2019

Top NBFC in india that are offering a variety of services. A company registered under the Companies Act, 1956 engaged in the business of Loans and advances,acquisition,shares/stocks/bonds issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase
construction of immovable property.

According to research and studies, NBFC’s in India are outperforming banks. NBFC’s in India are playing a major role in the financial sector contributing 12.5% growth in India’s GDP. People are preferring NBFC’s over banks as they find them safe, efficient & quick in assisting with financial services.

List of non banking financial companies in india.

HDB Finacial Services

Power Finance Corporation

        Bajaj Finserv

Mahindra & Mahindra Financial Services Limited

                   Muthoot Finance Ltd.

Cholamandalam Investment and Finance

Shriram Transport Finance Company Limited

Loan Origination Process Steps | Stages of Lending 2019

                                           7 Stages In Loan Origination

Loan Origination Process Steps is the most important & critical stage in the complete Loan servicing of Lending/Financial services.

The Finance Industry is now shifting its focus on Customer engagement & Satisfaction with the elements of design & delivery that fulfills customers’ expectations first.

 For almost every lender the definition of the term Loan origination is different – where it starts, the different stages within the process and where it ends. Every Loan type will have a different approval process that can be manual or automatic.

Lenders have their “secret sauce” when it comes to Loan Origination that they never want to share as Loan origination is what makes Companies stand out from their Competition.

Loan processing System is responsible for managing everything from pre-qualification to the approval of funding the loan.

Loan Origination Process steps:

1) Pre-Qualification Process : 

This is the first step in the Loan origination process.

At this stage, the potential borrower will receive a list of items they need to submit to the lender to get a loan.

This may Include :

 • ID Proof / Address proof: Voter ID, AADHAR, PAN CARD
 • Current Employment Information including Salary slip
 • Credit Score
 • Bank statement & Previous Loan Statement
 • Tax Returns Once this information is submitted to the lending company, Lender reviews the documents and a pre-approval is made, allowing the borrower to continue in the process to get a loan.


 2) Loan Application :

This is the second stage of the Loan origination process.

In this stage, the borrower completes the loan application.

Sometimes this application can be paper-based, but today lenders are shifting towards an electronic version that makes this stage Paperless.

New technologies allow completing the application online through website & mobile app, and collected data can be tailored to specific loan products.



 3) Application Processing :

At this stage, the application is received by the credit department and the first step done by the department is to review it for accuracy, genuine & Completeness.

 If all the required fields are not completed, the application will be returned to the borrower or the credit analyst and they will reach out the borrower to procure the missing information.

Lenders use LOAN ORIGINATION SYSTEM (LOS) to know the creditworthiness of the borrowers.

A good LOS will help a lender setup workflows to process a loan. It can automatically flag files with missing required fields, return it to the borrowers and notify sales/Credit department to rework.

Depending on the organization & product, exception processing might be a part of this stage. Loan Origination Software.


4) Underwriting Process :

When an application is totally completed, the underwriting process begins.

Now Lender checks the application taking a variety of components into account: credit score, risk scores, and many lenders generate their own unique criteria for scoring that can be unique to their business or industry.

Nowadays, this process is fully automated with the help of a rule engine & API integrations with Credit scoring engine (CIBIL, EXPERIAN etc. ) in LOS. In a rule engine, the lender can load underwriting guidelines specific to products.


 5) Credit Decision : 

Depending on the results from the underwriting process, an application will be approved, denied or sent back to the originator for additional information.

If certain criteria don’t match according to the rule engine set in the system, there can be an automatic change in the parameters, such as reduced loan amount or different interest rates.


 6) Quality Check :

Since lending is highly regulated, the quality check stage of the loan origination process is critical to lenders.

The application is sent to the quality control team, that analyze critical variables against internal and external rules and regulations.

This is the last look at the application before it goes to funding.


 7) Loan Funding :

Most loans fund shortly after the loan documents are signed. Second mortgage loans, Business loans, Loan against property and lines of credit may require additional time for legal and compliance reasons.

LOS can track funding and ensure that all necessary documents are executed before or together with funding.


 Checkout AutoCloud- Loan Software for lenders to know how it can help you enhance customer experience and let you customers get loans in less than 5 mins.

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