Loan Product Creation
OBJECTIVE
Loan products define the rules, default settings, and constraints for a financial institution's lending offerings. A loan product provides a template for multiple loan accounts for the financial institution's clients.
In this section of the manual, you will know how to create a loan product.
The following steps need to be followed for creating a loan product on new UI:
Log-in to the instance with the user Id and password and you will land on the below screen.
2. Click on ‘Loan Products’ option under ‘Products’ and you will see the below screen. Then click on ‘Create Loan Product’ button to create a new loan product as shown.
3. Once you click on ‘Create Loan Product’, you will see the below screen to select product type. Select the ‘Custom Product’ type to proceed further.
4. Once you select the ‘Custom Product’ type, you will get various sections to fill the details. Fill all the sections and keep clicking on ‘Next’ to proceed further. It contains the following sections:
1. Basic Info
Under ‘Basic Info’, you will see the following fields:
Name: Provide a name for the product.
Short name: Provide a short name for the product.
Applicable for: Here, you will get three options to choose from as shown below.
All Customers: This is applicable to all customers.
Individual: This is applicable to only individuals.
Business: This is applicable to only businesses.
Product Type: Here, you will get various options to choose from as shown below.
Credit: This is applicable for credit loans.
Gold: This is applicable for gold loans.
Loan Against Property: This is applicable for property loans.
Personal Loan: This is applicable for personal loans.
Two-Wheeler Loan: This is applicable for two-wheeler loans.
Four-Wheeler Loan: This is applicable for four-wheeler loans.
BNPL: This is applicable for BNPL (buy now pay later) loans.
Beneficiary Type: Here, you will get various options to choose from as shown below.
Anchor: It refers to the party or anchor who helps customers in receiving loans.
Merchant: It refers to the party or entity that receives the funds from a financial transaction as a result of providing goods or services to customers or clients.
Third-party: It refers to an individual or entity who is not a party to a contract but is intended to receive certain benefits or rights under that contract. This concept is often encountered in legal agreements or contracts where one party makes a promise to another party to perform certain obligations or provide specific benefits to a third party.
Self: It refers to an individual who designates themselves as the beneficiary of a financial account or insurance policy. In other words, the person designating themselves as the beneficiary is also the account holder or policyholder.
2. Currency, Precision & Rounding
Under ‘Currency, Precision & Rounding’ section, you will see the below screen. It contains the following details:
Currency: It refers to the currency of the loan product (for example: Indian Rupee).
Computation Precision: It determines the number of digits or bits used to represent and manipulate numbers in calculations (for example: if you select 0.01, it means that the number will be represented in two decimal places).
Installment in multiples of: The installments will be represented in multiples of the selected number (for example: if you select 5, it means that the installments will be represented in multiples of 5).
Enable rounding during foreclosure: If enabled, foreclosure amount will be rounded to nearest one's place value using 'ceiling rounding method'.
3. Approach and Basic Terms
Under ‘Approach’ section, you will see the below screen which shows five different approaches for loan computation.
On selecting the first approach - Principal amount, Tenure, Interest rate, under ‘Basic Terms’ section, you will see the below screen. If your loan product is based on Loan cycle (when you click ‘yes’). Click on ‘Add a set of terms’ button.
Once you click on ‘Add a set of terms’ button, you will see the below screen where you need to add a set of terms which contains the following fields as shown.
Provide Principal (Loan) amount, Default field is a mandatory field. Minimum and Maximum are optional fields where in loan amount can't be provided beyond the min & max value.
Provide Rate of Interest, Default field is a mandatory field. Minimum and Maximum are optional fields where in rate of interest can't be provided beyond the min & max value.
Provide Number of installments, Default field is a mandatory field. Minimum and Maximum are optional fields where in no. of repayments can't be provided beyond the min & max value.
You need to add at least one set of terms ending with greater than condition.
Greater than - Loan cycle as 1 with Principal Default amount of 20000. Greater than should always be used for the last cycle.
Equals - Loan cycle as 1 with Principal Default amount of 10000. (If there was a one more cycle, it could be defined as Equals - loan cycle as 2 with principal amount)
If your loan product is not based on Loan cycle (when you click ‘No’), you will see the below screen. Fill all the mandatory fields as required and click on ‘Next’ to proceed.
On selecting the second approach - Principal amount, Tenure, Installment Amount, under ‘Basic Terms’ section, you will see the below screen.
With this approach, we do not define the interest rate. Instead, installment amount is provided as one of the input parameters during loan account creation. The interest rate will be computed using installment amount and principal amount, tenure with IRR formula.
On selecting the third approach - Principal amount, Tenure, Discount Amount, under ‘Basic Terms’ section, you will see the below screen.
With this approach, Subvention is provided as one of the input parameters during loan account creation. The interest rate will be computed using subvention and principal amount, tenure with IRR formula.
On selecting the fourth approach - Principal amount, Tenure, Flat Interest Rate, under ‘Basic Terms’ section, you will see the below screen.
With this approach, Flat rate of interest is provided as one of the input parameters during loan account creation. The interest rate will be computed using flat rate of interest and principal amount, tenure with IRR formula.
On selecting the fifth approach - Principal amount, Tenure, Total Interest as % of principal, under ‘Basic Terms’ section, you will see the below screen.
With this approach, Percentage of principal amount is provided as equivalent to total interest during loan account creation. The interest rate will be computed using flat rate of interest and principal amount, tenure with IRR formula.
4. Repayment Frequency
Under ‘Repayment Frequency’ section, select any one option as shown below and then click on ‘Next’.
5. Amortization
Under ‘Amortization’ section, you will see the below screen. Depending upon the type of amortization you practice select any one among the two as shown.
Equal Installments - All repayment amounts will be equal but the principal and interest amounts will vary with each repayment.
Equal Principal Payments - All principal amounts will be equal but the repayment and interest amounts will vary with each repayment.
6. Apportionment
Under ‘Apportionment’ section, 'for regular payment, payment allocation order' option, you will get various options to choose from as shown. Select any one and proceed.
7. Moratorium
Under ‘Moratorium’ section, you will see the below screen. All the fields are optional to fill.
Principal payment: If Principal Payment is '6' and the client's Repayment Frequency is every month, then for the first six months, the client has to pay Interest only and after six months the client starts paying principal amount too.
Interest payment: If Interest Payment is '6' and the client's Repayment Frequency is every month, then for the first six months, the client has to pay Principle only and after six months the client starts paying Interest amount too.
Interest free period: If the Interest Free Period is '4' and the client's Repayment Frequency is every week, then for the first four weeks the client need not to pay interest, he has to pay principle due for that week only.
8. Interest Recalculation
On checking the check box for ‘Interest Recalculation’ - It will enable Interest recalculation and you will see the below screen where:
Interest is recomputed for every early repayment and late repayment.
In case of a foreclosure, this strategy will decide until when the interest needs to be computed.
If you ‘enable compounding’, you will see the below screen containing various options as shown below.
You will see few more options as shown below. Fill all the mandatory details as required and click on ‘Next’.
9. Multi Tranches
On checking the check box for ‘Multiple Tranches’ - It will enable Multiple Tranches and you will see the below screen containing various options as shown.
Limit tranches: Once enabled, you can set the number of tranches.
Tranche disbursement amount limit: You will get two options here:
Declining Limit: Tranche disbursement Amount <= Sanction amount - total disbursed amount
Floating Limit: Tranche disbursement Amount <= Sanction amount - total outstanding principal amount
Account closing strategy: You will get three options here:
Upon all total outstanding amount equals zero: This event can happen either before or after maturity date.
On or after maturity date: On or after maturity date, as soon as outstanding becomes zero, loan is closed.
Close manually (Extendable Maturity date): User has to close the loan manually (only if loan outstanding is zero).
Maximum allowed outstanding balance: Provide maximum outstanding loan account balance at a point in time. If not set, maximum allowed is same as approved amount.
10. Overdue and NPA
Under ‘Overdue and NPA’ section, you will see the below screen. Enable the button which says, ‘Account moves out of NPA only after all arrears have been paid?’. On checking the check box, Loans which are NPA will only moves out of NPA only after all arrears have been cleared. Then click on ‘Next’.
11. Additional Settings
Under ‘Additional Settings’ section, you will see the below screen. Enable the settings accordingly and click on ‘Next’.
12. Business Rules
Under ‘Business Rules’ section, you will see the below screen. It contains the following fields:
Start date of the product
End date of the product
Minimum days between approval and disbursement
Is the actual disbursal date same as the planned disbursal date: Enabling this will stop the disbursement if the dates don’t match.
Enable validation for number days between first repayment date and disbursal date: Once enabled, you will see the below options as shown.
Define allowed data range for above validation
Is Minimum duration check applicable for all disbursements: This is applicable for only multi-tranche. If this setting is enabled, duration between disbursal and first repayment date validation is done for all disbursements.
13. Charges
Under ‘Charges’ section, click on ‘Add a Charge’ button to add a charge (In order to use ‘Add a Charge’, you should have already defined it in ‘Charges' section under 'Admin Home’).
Once you click on ‘Add a Charge’ button, you will get various options to choose from as shown. Select any charge and click on ‘Next’.
Suppose you select ‘Insurance Charge’ (In order to use ‘Add Insurance Charge’, you should have already defined it in ‘Charges' section under 'Admin Home’) and click on ‘Next’, you will see the below screen. Click on ‘Next’ to proceed.
14. Penalties
Under ‘Penalties’ section, click on ‘Add a Penalty’ button to add a penalty (In order to use ‘Add a Penalty', you should have already defined it earlier). Once you click on ‘Add a Penalty’ button, you will get various options to choose from as shown. Select any one penalty and click on ‘Next’.
Suppose you select ‘Legal Charge’ (In order to use ‘Add Legal Charge’, you should have already defined it earlier) and click on ‘Next’, you will see the below screen. Finally click on ‘Next’ to proceed.
15. Preview
After filling all the sections, you will see a preview of details entered by you. Check the details and click on ‘Create’ button.
Once you click on ‘Create’ button, you will see the below screen which confirms that the new loan product has been created. You will also get an option to edit your details.