The primary function of banks is to accept deposits and use it to dispense loans. Every time a bank sanctions a loan it is creating an asset in its books. The interest a bank earns from lending contributes substantially to its bottom line. Lending itself stimulates business activity in the economy. Loan products offered by banks can be of various tenors, rates of interest, repayment schedules and complexity. Thus, you can have short or long term loans; loans at fixed or floating rates or a combination of the two; loans disbursed and repaid as a bullet or in installments and so on.
This chapter contains the following sections:
A loan passes through various stages or events from the moment it is given till the time it is repaid. The process begins with a loan application form in which the borrower is asked to furnish their details and the kind of facility requested. The bank’s loans or credit department appraises the application and takes a decision whether the applicant is eligible for the loan asked and whether loan can be extended to that customer. The bank will apply its own parameters in arriving at this decision. The factors which will go into this include the standing, character, track record and the collaterals (securities) offered to secure the loan. Assuming that the loan is sanctioned the bank gives a commitment and stipulates terms and conditions governing the same. The bank may levy a processing charge at this stage. The loan amount is then disbursed and credited to the settlement account of the borrower who draws the amount, uses it for the purpose for which it was taken. Interest accrues on the account which has to be serviced by the borrower besides repaying the principal amount as per the repayment schedule. If the loan is not repaid or there is a delay the loan asset’s status is changed to reflect its deterioration. The bank may also charge penal interest or interest on interest in such a scenario. Moreover then bank may have to make provisions from its profits for such sub-standard loans. On the other hand if the loan account is conducted well it will close on the date the last installment is due and paid. On closure, the bank will return or lift the collaterals which it had taken. The loan cycle is now complete.
The CL module in Oracle FLEXCUBE captures and maintains the parameters with respect to the life cycle of the loan (outlined above) once the application moves to the account processing stage.
The application moves to an account processing stage when the applicant becomes a customer of your bank. The customer’s record will now be available in the bank’s customer database. A Loan account is created which will be used to service the customer. Loan account creation involves capturing the details of the final loan application into the features of the Loan. Loan Accounts in Oracle FLEXCUBE will be created under Account Templates called ‘Products’. The system resolves the product category and product on the basis of the application details.
The Loan Account thus created, reports to the Asset GL of the bank. Disbursements will debit the loan account and hence a loan with outstanding balances will be in debit. Payments are credited to the loan account. At the end of complete re-payment, the account becomes zero balanced and is closed.
Product Categories are a logical grouping of certain products such as Vehicle Loans, Home Loans etc. The banks/ FIs can setup different products based on services they offer.
When a customer loan is sanctioned, a loan account will be created under a specific loan account product.
Hence, its’ features would default from the account product. The Loan account so created will be used for further Loan servicing such as disbursements. The loan account balance will represent the outstanding Principal that was advanced to the Customer. Interests will be calculated on this balance based on the schedule and pricing setup. The Account processing stage involves the following:
You can specify search criteria and query details pertaining to any records maintained in a particular screen in CL module and the details of the records are displayed in their respective summary screens. If multi-branch access is enabled for the user and the given summary function id, the query result will list the records from all the allowed branches of the logged in user.
In case if multi branch access is not enabled for either user or the given summary function id, then, the query result will display the records of the logged in branch only.
If a user tries to access the detailed record from the summary results for a particular record and if the record belongs to a branch other than logged in branch, system will check the following:
The CL Module interfaces with the following sub-systems/Modules of Oracle FLEXCUBE