What happens to a loan after it's sanctioned â disbursement, interest-rate linkage, monitoring and closure â and how retail lending operations differ from corporate/commercial lending.
KYC, credit score check, documents
Income/credit assessment, valuation
Terms, rate, tenure fixed & conveyed
Funds released, security created
EMI/interest collection, monitoring
Final payment, NOC, charge release
Home, auto, personal and education loans to individuals â standardised underwriting driven largely by credit bureau score, income proof and a fixed matrix of eligibility rules. High volume, individually small ticket size.
Working capital and term loans to businesses â appraisal driven by financial statement analysis, CMA data, industry outlook and negotiated covenants. Lower volume, larger ticket size, relationship-manager driven.
Operationally, retail loans are largely automated end-to-end (loan origination systems, e-KYC, digital disbursement), while corporate loans still involve significant manual credit-committee review and periodic covenant monitoring throughout the loan's life.
Most floating-rate loans are priced as a spread over a benchmark rate that resets periodically:
For working-capital accounts, banks track Drawing Power (DP) â the amount actually available to draw, computed from the latest stock and book-debt statement, capped at the sanctioned limit. Utilisation is monitored against DP (not just the sanctioned limit) every month, and persistent drawing beyond DP or the sanctioned limit is treated as an "out of order" account and an early SMA trigger.
Related: See our free Drawing Power Calculator and the CMA Data guide it draws from.
RBI mandates every bank to adopt a Board-approved Fair Practices Code covering loan application processing timelines, transparent disclosure of all charges, a defined grievance-redressal mechanism, and rules governing engagement of Recovery Agents (no harassment, defined calling hours, and identity verification requirements).
On full repayment, the bank must issue a No Objection Certificate (NOC)/Loan Closure Letter and release any charge/lien created on security (mortgage release, hypothecation satisfaction filed with the RoC, or return of title documents) within a prescribed timeline â RBI treats delayed return of property documents after full repayment as a customer-service lapse attracting compensation.
Related deep-dive: See the JAIIB notes on Operational Aspects of Loan Accounts for exam-focused MCQs.
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