The credit risk associated over a loan lifecycle can be best arrested at the time of originating the loan itself. So, Invariably there is a need to have  a more robust process and an intelligent system in place for evaluating a borrower than simply following the spreadsheet model and penning down large volumes of data on a piece of A4 size paper.

At a time, when a full fledge loan origination system has caught the fancy of most banks, there still exists some kind of disconnect of what they (the banks) want and what an origination system generally offers in the market. This blog shall make an attempt to list down the major or must have components that a bank should evaluate while cherry picking on an origination system vis-à-vis it’s business needs.

1.       Enterprise offering:  Usually origination system is coupled with a core Banking solution making it an inseparable package. If banks are pretty sure that they are not going to ever replace their core banking module or even migrate to a higher version in the near future, then going for a bundles product stands justified. However, the above scenario is very unlikely and does not stand any merit. In such cases banks should always go for a standalone origination package and most importantly evaluate the solution architecture and the API’s it offers to vindicate the solution is truly a core banking agnostic solution.

2.       Structured workflow in origination is a common ask by most banks. However banks should evaluate whether the same is required based on it’s banking needs. For example, a  bank dedicated to provide corporate loans would usually employ very few RM’s/ credit officers to form a credit evaluation to approval workforce. Also the peak volume of such applications at any point of time may not merit the need for structured workflow. In such case, the bank’s IT team can surely debate on whether the workflow tool can be clearly stripped off it’s orgination module and ask for unstructured flow with a facility to route and reroute the applications to and fro amongst the application users. This would surely save some money for the bank without having to compromise on any functionality

3.       Credit Scoring:  Banks should evaluate the financial analysis capabilities of the origination solution. However the bank would already be using some of the modules that offering such functionalities like financial statement analysis and translating the same into meaningful scores. Aligning the current scoring methodologies with the model the original solution offers, may not be appropriate or easy to emulate. In such scenarios bank should look at how the origination solution can integrate with these third party modules and work as one solution.

 4.       Straight Through Processing: This is an important piece where the data captured as part of the origination package gets translated into accounts and collateral in the Core banking system with no manual intervention. This would reduce the time it takes to convert a prospect into a customer and mitigates risk of any data lost from capturing the same from the application to Core banking module.

5.       Covenant Monitoring over the loan lifecyle: Origination should not stop at evaluating New to bank proposals but should go a step ahead in offering a consistent approach for constantly evaluating the account conduct for the availing customer. Frequent monitoring of ratios and constant monitoring of credit document falling due for collection are important factors to watch out for.