The rising strain of loan origination in India

In today’s Indian banking landscape, origination of loans — the process from application to sanction and disbursement — is under mounting pressure. As volumes begin to rebound for FY 2025-26, the battleground is no longer just growth of credit; it’s how swiftly and accurately lenders can turn applications into sanctioned loans without sacrificing control.

According to a recent study by Boston Consulting Group (BCG), one of the key pain-points for borrowers and lenders alike is long processing times: for small and micro businesses, traditional processes still take “weeks or even months”. Further, a BCG article noted that banks can raise efficiency by up to 30 % through process re-engineering, technology and production-steering.

For banks in India, the challenges in loan origination fall into three clusters: turnaround time (TAT), credit-risk & underwriting strain, and workflow/technology fragmentation.

1. Turnaround Time (TAT) – the silent growth killer

Borrowers in India no longer tolerate multi-week waits. The BCG “Credit Disrupted” report shows that the biggest complaints among MSMEs are “long processing time” (18 %) and “lack of transparency in timelines” (16 %). While that data was from 2021, the problem remains acute: other sources indicate that unsecured personal loans still take 7–10 days to disburse in digital-enabled lenders though applications may be near instant.

Why does long TAT matter? Three major reasons: (a) lost customers – “drop-off” during the wait, (b) higher cost of processing per loan and (c) an indirect link to higher bad loans. As the BCG-FICCI analysis in India revealed, loans sanctioned with lower TATs had lower default rates.

For Indian banks, this means origination is a bottleneck not only for growth but also for competitiveness. Consumers used to instant service in other domains expect the same in credit — if banks don’t deliver, non-bank lenders gain.

2. Credit risk, underwriting and new-to-credit (NTC) borrowers

As loan origination becomes faster, the second pressure point is risk. According to a recent BCG report, banks reduced unsecured retail lending to NTC borrowers by 12–17 percentage points between FY 2019 and FY 2025, reflecting increased risk aversion. The delinquency rate for NTC retail stood at 5.1 % vs 4.9 % for existing-to-credit (ETC) in FY 25.

That data flags two things: one, banks are tightening origination filters. Two, origination processes must be smarter (not just faster) to manage risk. This is especially true in segments such as MSME, unsecured retail, and first-time borrowers. The challenge is to accelerate origination without compromising underwriting integrity.

3. Workflow, legacy systems and fragmentation

A third challenge lies beneath: process and technology complexity. In many banks, the origination workflow remains heavily manual or semi-digital: multiple hand-offs, duplicate data entry, inadequate automation and unclear ownership. The BCG article on corporate lending emphasises that inefficient use of data, disconnected systems and complex governance significantly delay “time-to-yes”.

In India, this manifests as: extensive document collection, manual verifications, in-branch handoffs, and limited real-time visibility. For example, a case study found a 30–40 % reduction in TAT when an integrated digital platform replaced manual workflows.

Why the time is now for transformation

The operating environment for Indian lenders has never been more dynamic. According to another BCG insight, the digital lending opportunity in India is expected to grow substantially, with digital disbursements potentially exceeding US $1 trillion. That kind of growth demands origination processes that are scalable, agile and high-quality.

Moreover, regulations, open-data initiatives (account aggregator, ULI etc), and changing borrower expectations mean that staying with legacy origination processes is a strategic risk. A recent commentary on India’s loan-origination future underlines how AI-driven underwriting, alternative data and embedded/instant credit will dominate.

How senior bank executives can prioritise improvement

Given these multiple pressures, what should banks do? From our experience working with large lenders in India and the insights above, the following strategic levers are critical:

• Segment risk & fast-track lanes: Establish differentiated origination flows based on risk tier (e.g., micro loans, MSME, high-ticket). This enables simpler journeys for small, low-risk loans and concentrates underwriting resources on higher-risk segments. (As highlighted by BCG for corporate lending)

• Embed digital verifications and data-flows: Automate KYC, income/experience checks, bureau pulls, account-aggregator feeds to reduce manual touchpoints and errors. For example, case studies show 30–40 % TAT reduction with digital workflows.

• Adopt analytics and alternative-data for risk assessment: For new-to-credit segments or thin-file borrowers, using alternate data (GST, utility payments, mobile data) alongside behavioural models helps faster, intelligent underwriting.

• Streamline governance and cuts hand-offs: Simplify approval hierarchies, reduce unnecessary documentation for low-risk loans, establish KPIs around origination stages and drive throughput monitoring (production-steering).

• Upgrade technology backbone: Move away from fragmented legacy systems. Origination platforms that support end-to-end workflows — from lead capture to disbursement — significantly compress TAT and error rates.

Loan origination in India is at a critical juncture. As banks and NBFCs chase growth, they cannot overlook the twin imperatives of speed and quality. Long TATs frustrate borrowers and raise costs; weak underwriting or fragmented workflows increase risk and inefficiency. The evidence—from BCG and other sources—makes clear that transformation is not optional but urgent.

Senior leaders in Indian banks must treat origination as a strategic capability, not just a back-office process. By segmenting risk, embracing digital automation, embedding data-driven underwriting and streamlining processes, lenders can deliver faster credit, improve portfolio quality and retain competitive advantage in a market where the next generation of borrowers expects the “digital first” experience. The time to act is now.