Loan Industry Domain Knowledge | Loan Origination System

Introduction

A Loan Origination System (LOS) is a type of application that manages the complete loan application journey from the initial customer inquiry through disbursement or funding to the borrower.

An LOS is used by all the types of money lenders like Banks, credit unions, financial institutions and mortgage lenders.

An LOS has multiple modules and steps to process a loan application, there are multiple functions to which different entities are designate.

Terminologies used in LOS –

1. Lender – The entity which gives the loan
2. Borrower – Any Individual/Firm which takes a loan
3. Mortgage – An asset or property against which a lender provides loan
4. Disbursement – Transfer or credit of loan amount in borrower’s account
5. Repayment – Process of Returning the loan amount like EMIs(Equated Monthly Installments)

Types of Loan –

1. Retail loan
   1. Personal loan
   2. Home Loan
   3. Education Loan
   4. Auto Loan
   5. Gold Loan
2. Corporate Loans
   1. Business Loan
   2. Project Finance
   3. Term Loan
   4. SME Loan etc

Retail Loan Categories –

1. Secured Loan (With Mortgage)
   1. Home Loan
   2. Auto Loan
2. Un-Secured Loan (Without Mortgage)
   1. Education Loan
   2. Personal Loan

How does a loan is processed & managed?

The complete loan processing and management is done in two parts using Loan Origination System (LOS) and Loan management System (LMS)

Scope of LOS & LMS

The scope of LOS starts from initial enquiry and ends on disbursement whereas, scope of LMS starts from disbursement and ends on repayment of the loan

During the Loan Sanctioning, various third party Govt/Private agencies and logics are involved to complete the verification of the documents and details submitted by the borrower/applicant, these agencies are as follows –

1. NSDL – National Securities Depository Limited – For PAN/TAN card validation
2. NACH – National Auto Clearing House – for EMI deductions
3. UIDAI – Unique Identification Authority of India – for Aadhaar card validation
4. POSIDEX – It accepts demographic detail of customers applying for loan and check matches against existing customers of the Bank
5. DeDupe -Deduplication – The process of removing duplicate data or records from a dataset or system
6. Experian Hunter Check – A system used to detect and prevent fraud in credit applications
7. PeP (Politically Exposed Person) check during KYC (Know Your Customer)
8. CIBIL (Credit Information Bureau (India) Limited)
9. CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest)
10. CAM – Credit Approval Memorandum – If all the reports are positive, it will be stored here

On the basis of complete CAM reports, the underwriter can decide if the Loan and can be sanctioned or not.

Post the sanctioning of Loan the Loan structuring/Repayment structuring is done for EMIs on a particular date.

Conclusion

This is all about the process of loan sanctioning from scratch, in the next blog, we will be discussing the Loan Processing System in detail.