What is Loan Underwriting?

Loan underwriting is an eligibility process check performed by a lender, such as a bank or NBFC, to determine if a borrower/applicant meets the lender's eligibility criteria before approving the loan. It involves evaluating the borrower's credit information, reports, CIBIL scores, and financial documents such as income statements to assess their creditworthiness. A credit underwriter and a credit officer perform this process.

The eligibility criteria vary across lenders, but broadly fall into a few categories which are explored in the blog ahead. Skip to step 2 for the checklist.

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Also read:

Understanding the Lending Lifecycle from Application to Repayment Loan Origination System (LOS) for Banks and NBFCs

Loan Management System (LMS) for Banks and NBFCs Banks vs NBFCs: How Lending Software Differs in India

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How does loan underwriting work?

There are 3 steps to underwriting.

Step 1: Borrower submits loan application with documents

The loan application and documents are submitted either online or offline. The applicant's Bank statements, income proofs, and collateral papers for secured loans are some of the documents collected by the lender.

Step 2: Initial Assessment by Underwriter

Underwriters, often referred to as credit users, assess the creditworthiness of loan applicants and make initial recommendations for loan approvals or denials.

• Access applicant credit information

• Analyse credit reports and scores

• Review financial documents and applicant profiles

• Provide initial recommendations for loan approvals or denials
  

Broad Checklist for Underwriters *Eligibility criteria vary across lenders but fall into these broad categories*

1. Risk Management

   1. Record of current loans and EMIs

   2. Repayment history via Credit Bureau check (eg: CIBIL)

2. KYC and borrower verification

   1. Residence/business

3. Employment evaluation

   1. Business/Company stability (eg: Turnover)

   2. Nature of business

   3. Reputation in the market

   4. Job type and industry risk

4. Income Evaluation

   1. Monthly income (salary, bank statement)

   2. Income stability (If business, whether seasonal)

5. Bank Statement evaluation

   1. Average, monthly & EOD bank balance

   2. Transactions

6. Taxation

   1. ITR

   2. GST

7. Collateral (For secured loan)

   1. Legal papers

   2. Depreciation/appreciation

   3. Value and health

Step 3: Final Decision by Credit Officers

The credit officer is responsible for reviewing the recommendations made by Credit underwriters and making the final decisions regarding loan approvals.

• Review credit assessments and financial data

• Approve or reject loan applications

• Set interest rates and loan terms

Challenges with Underwriting during Loan Origination

Underwriting plays an important role in the loan origination process. It directly influences the risk a lender takes on themselves when they approve and disburse a loan.

Some of these risks include:

• Credit: The likelihood that the borrower defaults (fails to repay) on the loan

• Market: When economic downturns or industry instability impact a borrower's financial situation

• Collateral: If the lender can recover the full amount of loan by selling the collateral

• Regulatory: Failure to comply could result in lawsuits and penalties

• Operational: Human error eg: miscalculations and improper document verification

Underwriting Software: Factors to Consider

In practice, underwriting is either done a 100% manually, 100% automated or hybrid.

It would be best to assess which mode of operation works best for one's lending business.

A 100% manual process offers control and flexibility for complex or niche lending, but is time-consuming and resource-intensive. In contrast, automated underwriting uses algorithms for speed, scalability, and consistency, ideal for high-volume lending. A hybrid approach combines automation efficiency with human judgment for nuanced decisions, balancing risk management and efficiency.

SimSol's approach to Underwriting

At SimSol, we consider technology to be an enabler and advocate for a hybrid approach.

Our Loan Origination System (LOS) is crafted to speed up underwriting for lenders in adherence to regulations in 2 ways:

1. It allows lenders to establish roles and permissions that match underwriting duties, with secure and organised workflows.

2. The maker-checker feature simplifies operations and approvals, and audit trails offer full transparency into each step of the underwriting process.
   

With SimSol LOS, underwriters can:

• Access applicant credit information and analyse credit reports and scores

• Review financial documents and applicant profiles for risk assessment

• Leverage automated recommendations for initial approvals or denials

• Collaborate seamlessly with operations teams for additional data

  Approve or deny loan applications, set interest rates, and define terms

• Ensure compliance with regulatory standards through structured workflows
  

We help lenders deliver faster approvals, personalised loan experiences, and robust risk management. With compliance-ready workflows and analytics, we ensure your lending business stays agile and future-ready.

Loan Origination System (LOS) for underwriting

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