Beyond the bottleneck: How banks must rethink loan origination

In the first part of this discussion, we examined how loan origination in India is constrained by long turnaround times (TAT), rising underwriting complexity, and fragmented processes—challenges repeatedly highlighted in studies by Boston Consulting Group and industry bodies. The question now is no longer whether loan origination needs transformation, but how banks and NBFCs should re-architect it to support the next phase of credit growth.

India is entering a structurally different lending environment. Credit demand is expanding across retail, MSME, affordable housing, and supply-chain finance, while regulators and customers alike are demanding higher transparency, stronger controls, and faster outcomes. In this context, loan origination has emerged as a strategic capability—one that directly influences growth, risk, and customer experience.

1. Why incremental fixes are no longer enough

Historically, many banks attempted to improve origination by digitising individual steps—online applications, partial document uploads, or faster bureau pulls. While these helped at the margins, they failed to address the core issue: origination is still designed as a linear, manual, and people-dependent process.

BCG research consistently points out that banks with fragmented workflows suffer from excessive handoffs, unclear accountability, and limited real-time visibility into applications. Each manual intervention not only increases TAT but also raises the probability of errors, rework, and inconsistent credit decisions.

In a market where private banks and NBFCs can approve loans in days—or even hours—traditional lenders risk losing high-quality borrowers simply because their origination machinery cannot keep pace.

2. The new complexity of credit decisioning

Loan origination today is far more complex than it was even five years ago. Indian lenders are dealing with:

    • A growing share of new-to-credit (NTC) borrowers

    • Thin-file customers with limited bureau history

    • Volatile income patterns, especially in MSMEs and gig-linked segments

    • Heightened regulatory scrutiny on underwriting and auditability

BCG analysis shows that while banks have become more cautious—reducing exposure to certain unsecured segments—risk outcomes still depend heavily on the quality of origination decisions. Poorly structured underwriting frameworks either slow down approvals excessively or approve loans that later underperform.

The implication is clear: speed without intelligence increases risk, and control without automation kills speed. Banks must balance both within the origination layer itself.

3. Origination as a system, not a workflow

Leading lenders are now shifting from viewing loan origination as a sequence of tasks to treating it as a decisioning system. This shift has three defining characteristics:

a) Rule-driven, configurable decision logic

Instead of hard-coding policies into core systems or relying on manual credit notes, banks are externalising eligibility, risk, and policy rules. This allows business teams to adapt credit criteria quickly in response to market changes, regulatory updates, or portfolio performance—without long technology cycles.

b) Embedded intelligence at every stage

Modern origination embeds decisioning across application intake, document validation, credit assessment, and approval routing. Rather than waiting until “final underwriting,” risk is evaluated continuously, reducing late-stage rejections and rework.

c) End-to-end orchestration

High-performing banks orchestrate people, data, and systems through a single origination backbone. From sourcing to disbursement, every action is tracked, timestamped, and auditable—dramatically improving operational control.

BCG studies suggest that banks adopting integrated origination models can improve productivity by 25–30% while materially reducing approval timelines.

4. TAT reduction is a risk strategy, not just a CX metric

One of the most overlooked insights from BCG-FICCI research is the relationship between TAT and portfolio quality. Loans processed faster—when supported by structured data and automated decisioning—tend to perform better than those delayed by manual intervention.

There are three reasons for this:

    1. Faster TAT reduces applicant fatigue and drop-offs, improving customer quality

    2. Automated checks reduce human bias and inconsistency

    3. Early risk signals are captured more accurately when data is processed in real time

In other words, reducing TAT is not merely about customer satisfaction—it is a credit-risk control mechanism.

5. Governance and compliance: shifting left

Regulatory compliance in India has become more stringent across KYC, audit trails, credit policy adherence, and reporting. Traditionally, compliance checks occurred after loan approval, increasing the cost of remediation.

Progressive banks are now shifting governance “left” into origination itself—embedding regulatory checks, exception handling, and documentation controls directly into workflows. This ensures that every approved loan is compliant by design, not corrected after the fact.

BCG highlights that such embedded governance significantly reduces operational risk while also accelerating approvals, as fewer cases are flagged for post-sanction review.

6. What leadership must prioritise now

For CXOs and business heads, improving loan origination is no longer an IT program—it is a leadership mandate. The priorities should be clear:

    • Treat origination as a strategic growth lever, not a cost centre

    • Invest in configurable, rule-driven decisioning rather than rigid systems

    • Measure success not just by volumes, but by TAT consistency, rework rates, and early delinquency trends

    • Break silos between business, risk, operations, and technology

Banks that continue to rely on fragmented, manual origination models will struggle to scale profitably. Those that modernise will be positioned to win high-quality borrowers, manage risk proactively, and respond faster to market opportunities.

India’s lending opportunity remains immense—but only for institutions that can originate loans at speed, with intelligence and control. As insights from BCG and industry data make clear, the future of lending will be defined not by who lends the most, but by who originates the best loans the fastest.

Loan origination is no longer the starting point of lending—it is the foundation of competitive advantage.