Today, traditional banks in India take an average of three to five weeks to decide on small business and corporate loans, with the disbursement process stretching to nearly three months. Leading banks and financial services companies have embraced the digital-lending and reduce the approval and disbursal time significantly. Lending is central to most customer relationships, and digitizing it provides substantial benefits for both banks and customers. For banks, successful digital transformations lead to increased revenue growth and significant cost savings.

Personal-loan applications can now be submitted with a few swipes on a mobile phone, and time to disbursement can be as short as a few minutes. Housing loans is more complex due to regulatory constraints, yet many banks have managed to digitize large parts of the housing loan journey.  Banks are now treating SME/corporate lending as a digital priority. The reasons are clear: costs are high, and the opportunities to improve customer experience are significant.

While most banks have most of their operations digitized, the progress is slower in functions like corporate risk and credit. Some of the reasons for this slow pace include

1. Legacy IT systems making it difficult to change or adopt to changing business needs

2. Lack of trust in automated decision-making regarding credit decisions

3. Insufficient cooperation between businesses and risk, IT, and operations functions;

4. Limited data access; and scarce digital talent.

5. Moreover, there is no single “owner” of the credit process with the discretion to drive change at scale.

However, numerous financial institutions have successfully digitized the corporate credit journey. Here are 6 ingredients of a successful corporate credit transformation journey that these financial institutions have used to build digital lending capabilities.

1. Focusing on the entire customer journey rather than isolated process improvements yields better results. Leading banks that have done successful transformations have implemented solutions that allowed them to integrate the entire customer experience from lead management, onboarding, origination, and notification.

2. Risk managers often hesitate to fully automate business loan approvals. Leading banks have mitigated this risk by using no-code decisioning tools that allowed risk/credit teams to test models on past decisions and gradually introducing automation, starting with simpler cases and scaling up as the system proves reliable.

3. Relationship managers remain crucial in corporate lending. Successful banks combine digital applications with RM support, allowing customers to complete applications on shared screens and receive guidance throughout the process.

4. Financial statements often don’t provide the full picture and transactional data is too voluminous to analyse in corporate lending. Alternate scoring models are making their inroads in corporate/SME lending like the retail lending processes. Successful banks found success in using transactional data from primary operating accounts to get real-time insights into company performance, leading to more accurate and timely credit decisions.

5. An agile project delivery method, involving cross-functional teams with decision-making authority, is essential. This approach helps overcome internal silos and conflicting interests, ensuring a smooth and collaborative transformation process.

6. Collaborations with fintech companies and other financial services API providers enable banks to develop new capabilities and customer offerings quickly. However, banks must carefully assess and manage these partnerships to ensure they align with their business models and customer profiles.

While the challenges in digital-lending transformations are formidable and the path to ultimate success can be bumpy, experience proves that the efforts expended are more than fully repaid in competitiveness and profitability. Success means much faster corporate credit decisions, with customers getting disbursements faster; lower costs, less time spent on decision making; and better-quality risk decisions, which translate into greater profitability down the road.