How Manual NBFC Loan Management Processes Can Be Optimized with Automation

Jun 28, 2024
10 mins read
How Manual NBFC Loan Management Processes Can Be Optimized with Automation

Non-banking financial Institutions’ (NBFCs) loan processes are as intricate as bank loan processes. When you approve and disburse the loan to the borrower, you must manage its entire lifecycle expertly. Everything from payment collection to closing has to be efficient.

However, this efficiency is often lost because NBFCs rely on manual loan management and servicing processes. These manual workflows aren’t just labor-intensive; they are also error-prone and inefficient. 

This is where automation comes to the rescue, streamlining the entire loan management and servicing lifecycle. In fact, a recent study revealed that approximately 70% of financial institutions currently employ some type of automated loan management system, and so should you. [Source

The question now is how manual NBFC loan management processes can be optimized using automation. More importantly, which processes do you think can be automated? Let me answer them for you in this blog.

10 Key Areas for Automation in NBFC Loan Management

To understand how you can optimize the manual NBFC loan management processes, you need to identify the areas that can be automated. Consider this the most crucial step in your optimization process. Having worked closely with NBFCs, I identified these core areas and designed an NBFC Loan Management and Automation Software [but more on that later]. 

Here are the top ten key areas for automation: 

1. Loan Repayment 

This involves collecting payments from borrowers, ensuring they are received on time, and accurately recording them. It starts with sending out payment reminders and invoices. 

Upon receiving payments, they are recorded accurately to ensure timely updates. This includes capturing details like the amount paid, the date received, and the payment method used.

Once a payment is received, the borrower’s account is updated with the remaining principal balance and future payment dates.

2. Loan Reconciliation 

Loan reconciliation is a critical process involving matching loan payments received with the outstanding loan balance to identify discrepancies.

These discrepancies could be due to errors in data entry, missed payments, or prepayments.

Once identified, actions are taken to resolve the discrepancies, such as manually investigating the issue or initiating communication with the borrower.

3. Borrower Account Maintenance

It is important to efficiently handle and manage borrowers’ accounts for every transaction and communication. It keeps track of a borrower’s loan details, including payment history, upcoming installments, and account activity.

It also involves recording each payment received and updating the account balance accordingly. Additionally, it might involve managing changes to the loan terms, such as interest rate adjustments or loan extensions.

4. Borrower Communication

This involves keeping borrowers informed about their loan status, upcoming payments, and any changes to their loan terms. 

For example, borrower communication involves ensuring borrowers receive periodic loan statements, payment reminders, collection notices, and other account updates.

5. Document Management

The success of a lending institution depends highly on the management of essential documents. This means ensuring secure organization, storage, and retrieval of all loan-related documents.

It encompasses documents like loan applications, agreements, credit reports, bank statements, and other supporting documents used for loan processing.

Traditionally, document management involved physical storage in folders, which can be cumbersome and time-consuming to access. Document management essentially means storing and retrieving essential documents from spreadsheets and multiple folders on your computer. This, again, can be a cumbersome process as you will have to handle countless spreadsheets. 

6. Generating and Storing Reports

Report generation and secure storage are among the most important tasks of the NBFC loan management process. This process focuses on creating reports that provide valuable insights into loan performance, identify trends, and measure key metrics.

It typically involves gathering data from various sources, including loan accounts, payments, delinquencies, and customer information.

Based on this data, customized reports are generated that track loan performance metrics like delinquency rates, repayment trends, and collection effectiveness.

It can also involve generating reports for specific borrower segments or loan products to identify areas for improvement.

7. Cross-department Communication 

Ensuring streamlined communication within an NBFC is not easy. Even with instant messaging and collaboration tools, keeping everyone in the loop for every separate loan account is difficult. 

Cross-department communication should ensure smooth information flow and collaboration between different departments involved in the loan lifecycle. 

8. Contact Relationship Management [CRM]

Automating Contact Relationship Management (CRM) in NBFC loan management streamlines customer interactions, improving efficiency and enhancing customer satisfaction. 

It involves leveraging data and software tools to streamline processes, enhance customer experience, and drive business growth. The core aspects of CRM are:

  • Lead management 
  • Borrower Onboarding
  • Centralized Borrower Data Management 
  • Recording All Activities of Contacts
  • Loan Servicing
9. Escrow Management

Efficient escrow management is critical for mortgage loans. This applies to loans requiring an escrow account to hold funds for future disbursements (e.g., property taxes in a mortgage).

It involves collecting funds from borrowers to be deposited into the escrow account. Then, these funds are disbursed from the escrow account to designated payees, such as tax authorities or insurance companies.

Traditionally, escrow management involves manual calculations and check processing, which can be error-prone and time-consuming.

10. Risk and Delinquency Management

Risk and delinquency management is a fundamental process that contributes directly to the success of your NBFC. 

It focuses on identifying borrowers at risk of defaulting on loan repayments and minimizing loan losses. This involves:

  • Assessing high-risk borrowers based on their repayment trends
  • Analyzing loan reports to identify the delinquency rate
  • Proactively engaging with borrowers to assess their situations
  • Coming up with repayment plans for such borrowers

Optimize Manual Processes with NBFC Loan Automation Software

The key areas that I have mentioned above can be automated with just one loan automation tool, i.e., an NBFC Lending Software. The software is built with advanced automation features to streamline the loan servicing and management lifecycle. Here are the key automation solutions of the software:

  • Automated Loan Servicing

Automated loan servicing streamlines the entire lifecycle of a loan, from creation to closure. This feature manages all aspects of loan servicing, including payment processing, interest calculation, and borrower communication:

  • Efficient Payment Processing: Automates the collection and processing of loan repayments, reducing manual effort and ensuring timely payments.

  • Accurate Interest Calculation: Automatically calculates interest based on the agreed terms, ensuring precision and reducing errors.

  • Loan Tracking: Keeps track of the loan status, repayments, and outstanding balances in real time.

  • Compliance: Ensures adherence to regulatory requirements by automatically maintaining accurate records and generating necessary compliance reports.

  • Account Maintenance

Maintaining borrowers’ accounts is critical, and NBFC loan management software automates this task for you. The software automates the management of borrower accounts, keeping them up-to-date with real-time transactions, adjustments, and reconciliations:

  • Real-Time Updates: Updates borrower accounts immediately with every transaction, ensuring accuracy and up-to-date records.

  • Automated Adjustments: Handles adjustments for changes in loan terms, prepayments, and other modifications automatically.

  • Historical Data Management: Maintains comprehensive records of all account activities, providing a complete audit trail.

  • Borrower Portal

There is no need to engage in traditional communication channels to keep borrowers in the loop. The software provides a borrower portal module, so you can allow borrowers to check their accounts whenever they want. 

You can automate the notification process so they are notified in their portal regarding any updates or changes. Additionally, the borrower portal automates the process of keeping borrowers in the loop using the following features:

  • 24/7 Access: Borrowers can access their account information anytime, improving convenience and transparency.

  • Payment Management: Enables borrowers to make payments online, view payment history, and set up auto-debit instructions.

  • Document Access: Allows borrowers to download loan documents, statements, and other relevant files.

  • Communication Hub: Serves as a central point for borrower inquiries and messages, enhancing communication efficiency.

  • Automated Communication with Borrowers

You can utilize the automated notification and communication features to facilitate consistent and timely communication with borrowers. This feature utilizes automated emails, SMS, and in-app notifications. It also offers the following features:

  • Personalized Messaging: Sends tailored messages based on borrower profiles, loan status, and behavior.

  • Payment Reminders: Automatically sends reminders for upcoming and missed payments, reducing delinquency rates.

  • Notifications: Keeps borrowers informed about account updates, changes in terms, and other important information.

  • Loan Document Management

Automate the creation, storage, retrieval, and management of loan-related documents with NBFC lending software. The software allows for efficient document management, ensuring they are secure and easily accessible:

  • Digital Storage: Securely stores all loan documents in a digital format, reducing the need for uncountable spreadsheets or physical storage and ensuring easy access.

  • Automated Document Generation: Automatically creates standardized documents such as loan agreements, repayment schedules, and disclosure forms.
  • Compliance: Ensures all required documents are properly managed and easily retrievable for audits and compliance checks.

  • Automated Custom Report Generation

The custom reporting feature generates detailed and customized reports on various aspects of loan management automatically, providing valuable insights and analytics:

  • Customizable Reports: This feature allows users to create reports tailored to specific needs, such as loan performance, delinquency rates, and financial health.

  • Real-Time Data: Provides real-time insights through up-to-date data, aiding in informed decision-making.

  • Scheduled Reporting: Automates the generation and distribution of reports regularly, ensuring consistent monitoring.

  • Data Visualization: Presents data in an easy-to-understand format, including charts, graphs, and dashboards.

  • Contact Relationship Management (CRM) 

The software also provides CRM capabilities to automate the management of borrower relationships. The software tracks, records, and maintains every borrower interaction and profile:

  • Centralized Borrower Information: Keeps all borrower information and interaction history in one place, making it easily accessible by your entire team.

  • Interaction Tracking: Tracks all communications and interactions with borrowers, ensuring a comprehensive relationship view.

  • Lead Management: Manages potential borrowers (leads) from initial contact through to loan origination.

  • Impound/Escrow Management

For loans with mortgages and escrow, the software automates the collection and disbursement of escrow payments. This ensures accurate and timely handling of funds for taxes, insurance, and other obligations. It also provides the following features”

  • Automated Calculations: Calculates the necessary escrow payments and ensures funds are appropriately allocated.

  • Payment Scheduling: Schedules and processes escrow payments automatically, ensuring obligations are met on time.

  • Account Monitoring: Monitors escrow account balances and transactions in real-time and provides you with updated information.

  • Compliance and Reporting: Generates reports on escrow account activities and ensures compliance with regulatory requirements.

Wrapping Up!

Automation is not a passing trend; it’s here to stay and improve. By embracing automation, you can free your team from the shackles of manual work and empower them to focus on what truly matters – building strong customer relationships and driving business growth. 

As I mentioned before, I designed an NBFC Loan Management and Automation Software keeping these aspects in mind. 

If you are ready to experience this tool’s transformative power, why not let Bryt Software simplify your NBFC loan management processes? This software is designed as a cloud-native, end-to-end automated loan management and servicing software featuring all the above tools. So, go ahead and get in touch with us today!

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