Chapter 4 – Important Retail Asset Products
PROCESSING OF RETAIL LOANS
Banks generally adopt two types of models for processing of retail loans. These models are – (i) Stand Alone Model and (ii) Centralised Model.
Stand alone Model for Retail Loan Processing:
It refers to processing of retail loans independently at the branch level. Based on the discretionary powers, Branch will market the retail loans and process and sanction the loans based on the eligibility of the applicants. Obtention of the necessary documents, appraisal of the proposal and sanction of the loans will be done independently at the branch level. The valuation, legal opinion etc, are obtained at the branch level through the approved panel valuer/lawyers. if the proposal exceeds the discretionary limits of the Branch/Branch Head (as the case may be ),the proposals are referred to the Regional/Circle/Zonal Office of the Bank for approval and sanction. On approval, the loan is released at the Branch after completing the documentation/mortgage formalities at the branch level.
Centralised Model for Retail loans Processing:
Centralised Model for retail loans processing refers to processing of loans at a centralised place depending upon the geography of branches. Banks adopt different centralised models for processing of retail loans and name differently like
- Retail Loan Factory;
- Retail Loan Hub;
- Retail Loan Processing Centres;
- Retail Asset Processing Centres;
- Retail Loan Branches.
Banks adopt following approaches in this regard: Exclusive retail branches through which all retail loans in that location are sanctioned. Retail loan factories in specified locations and doing the end to end processing at that branch. Setting up retail loan processing centres at metros, state capitals and centres where there is good potential for retail lending. These branches/ processing centres will be fully supported with marketing personnel, panel lawyers, approved valuers etc. for speeding up the process, sanction and disbursal.
Process at Retail Loan Processing Centres:
- Branches attached to the Retail Loan Processing Centres (RLPCs and marketing personnel in these centres market various retail asset products to the target segments.
- The application and the required documents are forwarded to the retail loan processing centres.
- On receipt of application and details from the branches, RLPCs undertakes the following steps:
- Process the application.
- Do the verification checks.
- Arrive at the Credit Score.
- Do the valuation (wherever applicable) through the panel valuer_
- Obtain the Encumbrance Certificate (wherever applicable) through the panel lawyers.
- Obtain the legal opinion (wherever applicable) from the panel lawyer.
- Arrive at the quantum of finance based on the margin requirements for different loans.
- Pricing of the loan based on the Type of Loan/Credit Score/ individual Borrower/Group Borrowers.
- Advising the sanction of the loan to the Borrower/Branch with the terms and conditions.
- Receiving acceptance for the terms and conditions from the applicant.
- Execution of documents for the loan and also completing the mortgage formalities wherever applicable (any mortgage backed retail loans like Housing Loans etc.,)
- Release of the loan to the borrower.
- Verification of end use by the borrower.
The procedures for sanction and disbursement of loans through RLPCs vary among banks. In some banks, appraisal and upto sanction are taken care of by RI_PCs and post sanction formalities like release of loan, documentation, creation of mortgage, follow up and monitoring are taken care of by the respective branches. In some other banks, RLPCs function as separate branches. They offer end to end solutions right from processing to release and also monitoring and follow up. Branches have to just source the business and forward the details to RLPCs. In both the above methods, the objective is to speed up the process of sanctioning retail loans.
Stand Alone Model | Centralised Model |
Branch Level Processing | Retail Loan Processing Hubs/Centres |
Better understanding to Customer | Based on Document Only |
No Standardised Approach | Standardised Approach |
Different in Quality Appraisal | Quality will be Uniform |
Processing Time may Differ | Processing Time will be Uniform |
Documentation Standard May not be Uniform | Professional Documentation Standard |