2009

STRATEGY DEVELOPMENT
AND DEPLOYMENT OF LDP
OF AN INDIAN BANK
A case discussion on the existing loan disbursement system of a major Indian bank
and recommendation for a possible improvement to it.
 Abhra
Chatterjee

Loan Distribution Process:

The loan distribution process in any bank is one of the most challenging jobs
because of the high risk associated in case a loan goes bad. At the same time, it is
one of most profitable source of income for any bank. Perhaps this is the reason
why banks are both overly cautious and take time while disbursing a loan, while, at
the same time, they don’t want any eligible customer to return empty handed.
There is a lot of legal entanglement, policy and Government regulations that need
to be addressed in the process of a customer establishing his eligibility for the loan
amount applied for.

For a service operation like that of banking it requires high customer contact and
the brand value of the company fosters on intangibles some of which are listed as
under:

 Customer satisfaction.

 Trust and Loyalty to the bank.

 Quickness and delivery time.

 Dependability on bank/ customer.

 Customer grievance redressal.

 Reputation of the Bank.

 Uniformity of service across branches and departments.

A point worth remembering is that every point of contact with the customer is a
potential dent in the reputation of the bank as it increase the risk of a customer
being dissatisfied by the service rendered by the bank and hence it is imperative
that the bank decreases these occurrences with the help of more sophisticated
process supported by the right technology.

In the light of the above parameters and customer contact, the Bank given in the
case is evaluated as:

 1992: 1. 5 visits to the Bank. Applicant had to sit for two interviews.
Processing time 2 months.

2. Customer has to accompany the inspection team to the site.

3. No customer redressal form.

4. Not many players. So customers did not have choice.

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5. Not much of the intangible benefits listed above taken care of.
 Abhra
Chatterjee

 1995: Changes brought into the system with:

1. Decreasing the customer visits to the Bank.

2. Decreasing the loan disbursement time.

3. Decentralization of the loan sanctioning mechanism. Now done at

branch level.

This resulted in saving of precious man hours for the Bank and also
reduced the risk of improper service by Bank officials.

 Present Scenario: With the advent of technology and especially the

internet, the loan distribution process was made more and more suitable to
the needs of the customer. The different departments being connected via
technology decreased the time frame of the services and improved visibility
of the customer by keeping him updated of his loan status. Thus though the
face to face customer contact has decreased giving the bank the freedom to
change its internal processes, it has increased its virtual contact with the
customer through internet.

Mission Statement for Loan Disbursement Process of the

Bank:
1. To provide hassle free and transparent loan disbursement within 10 days of
the customer applying for a loan and submitting the necessary documents.

2. To ensure best customer relationship and address customer grievances, if

any, after the loan has been disbursed.

Objective:
The primary objective of the policy is to reduce the customer loan disbursement
time and create healthy & convenient lending procedure. It is also aimed at
developing cordial relationship with the customer and promoting better
understanding between the borrower and the Bank.

The policy broadly addresses the following:

 Providing clear Information to the borrower in the Loan Application Form

about the Fees / Charges on processing of loans, pre-payment options, refund
of fees etc.
 Transparency in the procedure.

 Stipulated time frame for disposal of application.

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 Abhra
Chatterjee

 Appraisal and Assessment of the limits, margin stipulation and validity of the
documents submitted.

 Getting feedback and addressing the customer grievances post loan sanction.

 Targeted to increase market share in loan distribution by 10% for the

financial year 2009-’10 and contribute 30% to the banks overall annual
turnover.

Strategy:
In order to achieve the stated objectives the Bank could have the following points in
hindsight while designing their strategy:

 People nowadays have become very busy with their official work. So coming
to the bank frequently is not possible.

 In general, patience and tolerance level have come down. People are ready to
pay a fraction of money extra for immediate and convenient service.

 Integrated and comprehensive information technology and database service

can be put in use.

 By assuring 100% customer satisfaction and transparency, we win trust and

loyalty of customers. This adds to brand value for Bank in an industry which
acts more on word of mouth publicity.

So, the model below tries to leverage on the application of information technology
and scheduling mechanism to design a service plan. A “milestone” is the end of a
stage that marks the completion of a work package or phase. In our strategy we
target completion dates for each and then have some buffer time for unforeseen
circumstances.

The Overall Strategy Model:

Step 1: Customer creates
an online account and fills
the form online. A list of
necessary documents
provided to him
Step 2: Bank officials visit
the customer in person and
collect the necessary
original documents. He also
explains the terms properly.
Step 3: Customer given the
cheque or amount directly
credited to his account.

Credit History of the person Necessary legal verification

is checked and the and recording of mortgage
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maximum loan amount that documents is done. Loan

can be sanctioned is sanction procedure is
calculated. initiated.
 Abhra
Chatterjee

The Engine Beneath:

 The Loan Home Page Bare Minimums:

The online page for Home loan disbursement should be designed to provide
comprehensive information in lucid terms about all the terms and conditions for the
loan. It should also lay down in simple words:

a. How the loan amount is calculated.

b. The repayment terms.

c. Interest and Processing fee.

d. The security/ Guaranteer clause.

The home page can have a real time chat interface with customer service people to
assist them in case of any difficulty in filling up the form. An EMI calculator is also
recommended on the loan home page to help customers in finding out how much of
loan they can afford.

 Information Flow:

The strategy designed relies heavily on the integration of information technology

with the credit sanctioning (legal document verification) procedure to maintain
customer database and effective scheduling of the steps in the loan disbursement
system. The systems attempts to introduce accountability of the operators in each
step and also stipulates average time allotted to achieve individual milestones.

MILESTONES

Front End Engine Back End Software

Support Days
Customer applies for loan Auto creation of unique
applicant account with the
Day
provision of save, exit and
0
Re-login.
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Check if the necessary

A pop-up to show the list of documents are sufficient to Day
documents required. proceed. Else display error 0
Checkboxes against what message and advice the
all documents the applicant to collect the
applicant can give. necessary documents.
 Abhra
Chatterjee

Completed form submitted.

Detailed EMI calculator
based on the loan amount
requested (if amount less
than max limit) and
repayment period
Confirmation and PDF copy
of form sent for reference to Day
applicant. Unique application 0
number generated and
tagged to user account.

Database entry made for:

Contact customer and
bank official goes in person a. Loan amount Day
to collect the original requested. 2
documents and explains
b. List of documents
the terms and conditions
submitted.

Loan sanctioning process

Documents sent to the
land registry department
for verification. Applicant’s
income details verified.
started from the bank’s end.
Follow up with the legal Day
document verification with 6
regular updation to take
corrective measures in case
of backlog or any problems

Loan amount and cheque

If everything is proper, number is updated in user
Loan is sanctioned. account. User account Day
Customer is handed over maintained for customer 8
T actics:
the cheque or the amount grievance redressal/
is directly credited to his feedback and as a window to
To implement the above strategy, certain changes are to be brought into the
sell future financial products.
existing system like:

1. Employees of the Bank should be convinced that employee satisfaction is of

paramount importance and is the key to sustenance in the current business
scenario.

2. Employee Empowerment: Small teams of individuals should be formed and

assigned the task of end to end assessment and sanctioning a loan
application. This would reduce the dependence on the Bank managers. Loans
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of bigger amounts can be referred to the manager.

 Abhra
Chatterjee

3. Impart IT training to the employees.

4. Timely and honest updation of the loan application status report on the
database.

5. Customer sent email/sms communication regularly to apprise him of his

application status.

6. Workforce Design: Specialised workforce for evaluating individual levels in

the application procedure. Since all the application process is automated,
accountability and time allotment is maintained. So specialization is possible,
which could result in less cost and more efficiency.

7. Balance the work force according to the work to be done in each level.

8. The system can also have a PAN Card authentication system for customer
database and qualification of customer for loan amount applied for.

9. Customer feedback collection through online/ email media or suggestion box.

Both customers and employees can suggest methods to improve the system.

Measuring the Effectiveness of the Strategy deployed:

The Key Performance Indicators (KPI) for the model adopted can be:

1. Time taken to complete each milestone.

2. Reduction in average loan disbursement time.

3. Customer satisfaction survey/ index.

4. Growth in customer base.

5. Customer complaint record and time taken to redress them.

Sources of Dissatisfaction <Frequent Customer Complaint>:

a. Bank take processing fee and then too they fail to disburse the amount in due
time. In many cases, it so happens that the loan processing time is as high as
6 months and they applicant may have switched job etc leading to further
complications and reduction in loan amount.

b. Faulty EMI charged to customers.

c. Very less customer contact and relationship management one the loan is
sanctioned.

d. CITI Bank – Direct Selling agents are miscommunication the terms and
conditions of the loan. Their sole aim is accumulating numbers. It resulted in
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many fudgy transactions and dissatisfied customers as they are many a

 Abhra
Chatterjee

times given false promises and agreements. Then they are charged more by
the bank for terms the customers were not informed by the DSA.

e. Late arrivals of cheque to the owner and hence late fine and interest
payment by the customer.

f. Very Bad customer service. No grievance redressal mechanism.

Reference:
1. www.statebankofindia.com

2. www.icicibank.com/pfsuser/.../homeloans/hlhomepage.htm

3. www.online.citibank.co.in

4. www.obcindia.co.in

5. www.consumercomplaints.in

6. www.complaintsboard.com/complaints/hdfc-bank.../0.html

7. http://www.apnaloan.com/home-loan-
india/loanprocess.html
8. http://homeloanslegalscrutiny.weebly.com/

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