How can banks process working capital loans faster using advanced API

Introduction

In the financial ecosystem, banks and lending institutions operate under the principle of risk management and due diligence to ensure the viability of their loan products and the creditworthiness of their borrowers. One of the foundational aspects of this due diligence process involves the meticulous assessment of Income Tax Returns (ITR) and Goods and Services Tax (GST) details. These documents serve as a financial magnifying glass, providing a transparent and detailed view of an individual's or business’s financial activities, earnings, and tax compliance.

Given the critical importance of these documents in the loan approval process, integrating technological solutions such as the GST Return API can revolutionize how banks assess loan applications. This integration not only streamlines the documentation process but also enhances the accuracy and efficiency of the financial assessments, ultimately facilitating faster and more reliable loan disbursement.

Background

Working capital is important for businesses of all sizes, from startups to established firms. It covers short-term expenses by balancing current assets and liabilities. However, many small and medium-sized companies face challenges in maintaining sufficient cash flow for working capital due to limited investments and uncertain profitability.

When it comes to obtaining working capital loans, banks and Non-Banking Financial Companies (NBFCs) often require Income Tax Returns (ITR) and Goods and Services Tax (GST) details for loan purposes primarily to assess the creditworthiness, financial stability, and repayment capacity of individuals or businesses seeking loans.

Reasons why banks request documents for working capital loans

1. Income Assessment: ITR provides a comprehensive overview of an individual's or business's income, including details of earnings, deductions, and exemptions. This information helps banks evaluate the applicant's financial capacity to repay the loan.
2. Creditworthiness: By reviewing the ITR, banks can assess the creditworthiness of the borrower. A consistent and healthy income history increases the likelihood of loan approval.
3. Financial Stability: ITR and GST returns provide insights into the financial stability of businesses. Banks analyze financial statements to understand the company's profitability, liquidity, and overall financial health.
4. Risk Mitigation: Banks use financial documents to identify potential risks associated with the loan. Understanding the income and financial history helps in assessing the risk of default and making informed lending decisions.
5. Tax Compliance: Banks may request ITR and GST details to ensure that the applicant complies with tax regulations. Compliance with tax laws is often considered a positive factor in loan approval processes.
6. Repayment Capacity: ITR and GST documents help banks evaluate the applicant's ability to meet the loan repayment obligations. The information assists in determining whether the borrower can manage the loan repayments based on their income and financial commitments.
7. Documentation Standardization: Requesting ITR and GST details is part of the standard documentation process followed by many banks. It helps ensure consistency and provides a standardized approach to evaluating loan applications.
8. Regulatory Compliance: Financial institutions are required to comply with regulatory standards and due diligence processes. Collecting ITR and GST details may be part of the regulatory compliance framework to prevent fraud and ensure responsible lending practices.
9. Verification of Information: ITR and GST details serve as official documents that can be cross-verified. Banks use these documents to validate the information provided by applicants during the loan application process.
   

Problem Statement 

When it comes to obtaining working capital loans, banks and Non-Banking Financial Companies (NBFCs) often encounter challenges, such as slow decision-making processes. Both banks and NBFCs take several days or even weeks to decide on a business loan application, resulting in the loss of prime customers.

After loan disbursement, there is no ongoing health check, leading to an inability to authenticate data and a manual nature of documentation, which are key reasons for inefficiencies. The extended decision timelines for loan applications can deter prime customers from seeking quick financial solutions, potentially leading to loss of business opportunities.

Moreover, the absence of continuous financial monitoring post-disbursement can result in authentication issues and delays due to the necessity of manual documentation checks, hindering the overall efficiency of the lending process.

The reasons behind these issues include a lack of data authentication for borrower financial data, non-standard P&L and Balance Sheets that consume a lot of processing time, and a lack of data for recent business performance.

Solution

Banks can effectively tackle these challenges by streamlining loan underwriting processes through the utilization of advanced APIs and Artificial Intelligence technologies. These advacned APIs are designed to enhance efficiency and accuracy in several ways:

1. Seamless access to GST and income tax websites to procure precise and up-to-date data for thorough analysis.
2. The ability to summarize complex data sets swiftly and pinpoint potential risks or inconsistencies that require further investigation.
3. Providing a framework for continuous monitoring, enabling banks to conduct ongoing risk assessments and evaluations to ensure sound decision-making.

Some of the solutions that are available in the market

1. Vaultedge Financial lending API
2. Finfort
3. Karza Technologies
4. Signzy Technologies
5. Corpository - A Yubi Company
6. Perfios

About Vaultedge Financial Lending API

Vaultedge offers advanced software for automating Financial Statement Spreading and Loan Underwriting. The software seamlessly connects to Income Tax and GST websites to effortlessly retrieve pertinent data. This data undergoes credit modeling to determine the approval status swiftly. In just minutes, Vaultedge provides preliminary loan eligibility, expediting the process.

Vaultedge provides two APIs for loan processing:

1. Income Tax Return API: This tool extracts Profit & Loss statements, balance sheets, and income computations from the Income Tax website. By connecting to the income tax platform, it facilitates the download of ITR returns and the conversion of P&L, Balance Sheet, and Income Computation into the required format for your credit model.‍
2. GST Return API: This API links to the GST website to retrieve GST Returns and condenses them into a suitable format for underwriting and KYC-AML purposes. It cross-references GST data with other financial information to detect any suspicious transactions effectively.

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The diagram above illustrates the operational flow of the API. With Vaultedge, banks can effortlessly access three years of ITR data (P&L, Balance Sheet, Income & Tax, 26AS, Form 3CB/3CA) and retrieve 18 months of GST returns, all presented in a standardized format.

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Conclusion 

In conclusion, Financial lending is complex and demanding. Using advanced APIs and Artificial Intelligence can be a game-changer for banks and lending institutions seeking a competitive edge. Vaultedge's Financial Lending API offers accuracy, speed, and reliability, making it a valuable asset.

For banks & NBFCs aiming to enhance their loan processing workflow and service delivery, we recommend scheduling a demo call with Vaultedge. This will provide a detailed understanding of how the Vaultedge Financial Lending API can meet your needs and enhance your loan underwriting process. Reach out to Vaultedge today to explore how their advanced solutions can benefit your organization.

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