Why a modern loan origination system (LOS) is essential in India

In today’s fast-paced lending environment, borrowers expect loan applications to be swift, paperless, and transparent. In India, this urgency is even more pronounced—reports show that over half of digital loan applicants drop off before submitting, while around 40% abandon personal loan processes and 33% quit mortgage applications due to prolonged steps and complex ID checks. Legacy systems, with manual form filling, fragmented verifications, and physical interactions, drive these abandonment rates, eroding both growth opportunity and customer trust.

As the Reserve Bank of India (RBI) pushes for quicker onboarding through Video KYC (V-CIP) and non-face-to-face (NFTF) methods, and the Account Aggregator (AA) framework facilitates consent-based data sharing, lenders are at a turning point. The AA ecosystem alone facilitated over ₹1.6 lakh crore in loans across 1.89 crore accounts in FY 2025, highlighting its transformative potential. To succeed in this landscape, financial institutions must adopt a modern LOS that is digital-first, compliant, and friction-free.

Challenges in Legacy Loan Origination

• High abandonment rates: Complex processes cause borrowers to drop off—more than 50% don’t complete online financial applications, and 70% of customers abandon applications when loan sanctioning takes over three days.

• Manual data entry and duplication: Paper-based processing increases errors, slows turnaround time, and raises costs.

• Fragmented verification workflows: Heavy reliance on physical checks for KYC, credit evaluation, and collateral slows down loan pipelines.

• Compliance risks: Legacy systems often fall short of RBI norms for KYC, V-CIP storage protocols, and audit trails.

• Limited use of open finance: While AA adoption rose sharply in FY 2023–24, only 8–10% of India’s adult population actively uses AA, leaving significant growth potential untapped.

What the Ideal LOS Should Offer

• Omni-channel application intake

A unified platform that handles applications from web, mobile, field sales, telesales, agencies, or self-service channels to ensure consistency and efficiency.

• Smart form filling and auto-complete

Use of OCR and integration with Aadhaar, PAN, and GST databases to minimize manual input, ensure accuracy, and shorten application time.

• Real-time status updates

Automatic SMS, email, or app notifications that keep borrowers and internal stakeholders informed about progress or additional requirements.

• Digital and physical verification integration

- Digital: Retrieval of credit scores, e-KYC through Aadhaar/PAN/GST, bank statement analysis, and account validation via APIs.

- Physical: Workflows for field investigations, collateral checks, and fraud assessments, with digital tracking of reports.

• Embedded Video KYC (V-CIP)

Compliant with RBI norms, with features such as liveness detection, document verification through DigiLocker, audio-video recording, timestamping, and secure storage within India.

• Account Aggregator integration

Seamless access to consented borrower financial data for underwriting. With AA powering over ₹1.6 lakh crore in lending in FY 25 and crossing 100 million consents, lenders gain faster, richer insights for credit decisions.

• Rule, decision, and workflow engines

A rule engine to match applications against product policies, a decision engine to suggest interest rates and FOIR, and a workflow engine to align approvals and handle deviations.

• Sales and task automation

Sales assist features that track borrower journeys, and task management tools that automatically route approvals and escalations.

• Agency management and role-based access

Marketing and verification partners operate securely within a controlled digital ecosystem with audit logs.

• Built-in calculators

EMI and eligibility calculators help borrowers and sales teams quickly gauge loan feasibility.

Why This Matters for Indian Lenders

A modern LOS transforms lending by combining speed, compliance, and customer-centricity. It reduces turnaround times from days to minutes, cuts operational costs, and enhances portfolio quality through better risk assessment. Borrowers gain faster, more transparent access to credit, while regulators benefit from audit-ready trails and adherence to RBI frameworks like V-CIP and Account Aggregator.

India’s digital finance ecosystem is evolving rapidly. With MSMEs showing strong adoption of digital payments but only limited use of digital lending platforms, the growth opportunity is significant. As demand for retail loans, MSME credit, and consumer lending continues to rise, institutions that adopt an intelligent and integrated LOS will be best positioned to capture this demand. The future of lending belongs to lenders who can turn friction into agility and loan applications into disbursals with speed, compliance, and trust.