For many, securing a home loan is one of the biggest financial decisions. And, often, most lenders cannot accept a loan seeker’s application for various reasons. Providing documentation is a huge task, specifically for housing or mortgage loans due to their high ticket size compared to other loans.
Housing Finance Companies (HFC) require data to ascertain an applicant’s ability to repay the loan on time. And this goes beyond sharing bank account information and payslips. Obtaining data that can assist home loan lenders in making the best decision is difficult. Providing and collecting hard copies of PDF documents is a time-consuming procedure for both applicants and housing finance businesses. Some applicants may also tamper with these documents. As a result, many lenders need to process data via screen scraping, which entails gaining access to your banking information using your credentials. This is a perilous task.
However, with the RBI’s approval of the Account Aggregators (AAs) and the Open Credit Enablement Network (OCEN), the home loan market is about to undergo a sea change. This is the first step towards enabling thousands of people to provide consent to exchange financial data between institutions and apply for loans.
An Account Aggregator (AA), is a RBI-regulated NBFC that provides the service of retrieving or collecting information of its customer pertaining to such financial assets, as may be specified by the bank from time to time, besides consolidating, organising and presenting such information to the customer or any other person as per the instructions of the customer.
AAs will assist individuals in securely and digitally accessing and sharing the collective & comprehensive financial assets information of a customer from one financial institution to another. OCEN assists lenders in integrating their lending technology with a variety of platforms to expand their borrower base. Institutions offering housing finance needs to use this mega opportunity to increase their customer base and disburse more loans with accurate information.
Here’s how AA and OCEN can help housing finance providers:
Safe access of loan seeker’s data
In the present scenario, lenders either seek documents from the applicant or use the screen scraping method to understand the applicant’s creditworthiness and overall financial health. However, many applicants may not be comfortable sharing their credentials. As a result, financial institutes may not get a correct picture of the applicant’s financial health.
AAs will help HFCs to increase the velocity of safe lending. Through AAs, loan seekers can give access to view their data without sharing any bank credentials. This comes with flexibility and control at the loan seekers end i.e. a loan seeker can decide what data s/he wants to share and for how much time.
Estimation of down payment
One aspect differentiating housing loans from other loans is the significant down payment that borrowers need to pay to avail a home loan. The down payment or the customer’s equity significantly influences the overall loan amount and the EMI. While lenders can predict future loan repayment through credit reports, it is difficult to figure out the amount of down payment that the individuals can pay upfront. To show the amount of down payment they can pay, individuals have to share their investments or pension fund details. This is a tedious process.
However, with AA, lenders can easily estimate the down payment the borrower can make as they can access their details in one place and make the loan offer after considering overall financial health.
Faster loan processing
Availing the services of AA can help HFCs to process loan applications faster. Companies don’t have to go through every piece of information provided by the applicant manually to make sense of the information.
Just like the credit bureau report provides information with loan repayment history and loan enquiries, the AA could also provide the required information in one place. So, it may reduce the time taken for the overall process by two or three days.
Reduce non-performing assets
Lending is all about ascertaining risk in credit underwriting, and Non-Performing Assets (NPA) are a part of it. No lending business can be entirely free from NPAs. However, AAs can help to reduce the risks associated with lending by providing loans only to borrowers with a good financial standing. It is because AA makes it possible to gauge the applicant’s creditworthiness after considering all the different aspects.
Offer personalised loans
Through the use of AA, lenders can offer customised and personalised loan offerings. Loan terms such as interest rate, tenure and down payment for different customers can be customised.
Loan monitoring
HFCs can monitor the financial health of the borrower through AAs. This will help lenders monitor the cash flow of the existing and new borrowers. Loan monitoring may lead to early intervention and lower loan loss provision. Through loan monitoring, companies will identify early warning signs and use them to take care of their borrowers before it becomes too late.
Use UPI for loan collection
In addition to loan monitoring, lenders could also collect loan payments through UPI mandate. It will apply to clients who have not configured auto-debit.
Increase customer base
OCEN protocol will help HFCs to reach out to more entities and increase their customer base. A platform that already has a relationship with individuals and MSMEs can plug-in the lending capabilities of the loan providers to their existing product and service offerings through the OCEN protocol. Loan Service Providers (LSPs) are these OCEN-enabled marketplaces that act as borrower-facing agents or intermediaries. AAs serve as drivers in this credit ecosystem powered by OCEN. LSPs must incorporate AA APIs into their workflows to enable lenders to request borrower data digitally and securely.
In the age of digitisation the advent of AAs and OCENs protocol shall compliment the loan disbursal journey. In future, HFCs may be able to access personal details in the Aadhaar database, reducing the step of personal verification and further reducing the time taken to process loans. Utilising the latest features will help the HFCs increase their customer base, reduce risk, and process loans faster.
The writer is MD & CEO, Motilal Oswal Home Finance.
