How Lean Six Sigma Can Improve Bank Loan Processing?

Operating profits in the banking industry vary a lot by the slightest of the changes in the operating efficiency percentages. This is because of the obvious reason that the scale of operations is huge. Banks thus should strive to keep the operating costs at the minimum by increasing efficiency in their processes. All the different processes have some costs which are common to all. Some costs are process specific.

One methodology or approach which can be used to reduce cost is Lean Six Sigma. Once the processes are made to filter through this methodology, there is a significant increase in the operational efficiency.

Lean methodology helps in getting rid of waste derived out of non-necessary analysis. Six sigma approach helps in getting rid of variations in set processes. Combination of lean methodology and six sigma approach is Lean Six Sigma and it focuses on reducing the inefficiencies by reducing redundancies, errors, underutilized resources and unnecessary approvals. In the present scenario of cut throat competition in the banking industry, efficiency is the key. Banks which are not efficient have a higher risk of facing financial crunch and being left behind in the race to the top.

There are a number of varied processes carried out in a bank. Loan processing is one of the processes with very high operational costs. Lean six sigma implementation to the loan processing reduces the inefficiencies to a greater extent. Even if loan processing is running at full capacity it doesn’t guarantee maximum efficiency. Banks should strive for optimum productivity and not be complacent with full capacity. Lean six sigma helps in achieving optimal productivity.

To get rid of the inefficiencies banks must realize the presence of inefficiencies in loan processing. The time taken for the processing of each loan should be recorded and compared with every next loan processed. If the dispersion in time taken for every loan processed is on a higher side then it is a clear sign that there are inefficiencies. The primary reason for this dispersion in time taken for every loan processed is, not following a set process. The loan processing can be defined and set using six sigma to ensure minimum dispersion and maximum efficiency.

Employee leaves, client documentation delays or a particular period in the year being busy affect loan processing. These instances also indicate that there are inefficiencies. With the implementation of lean six sigma all these delaying factors are taken care of. This involves pooling in additional resources, and reducing unnecessary documentation. Collecting only relevant information will help to make documentation easier and faster. Moreover it will be convenient for the prospective clients as well. Cross functional training should be done to make additional resources available for loan processing. This will avoid the delays caused due to excessive load on the resources allocated to loan processing.

Time taken for every loan processed should be in a direct correlation to the complexity and risk involved. The riskiest and the most complex of the loans should take the maximum time. If it is in correlation to the size of the loan instead, it is a clear indication of the presence of inefficiencies in loan processing. Lean six sigma sets and defines the loan processing so that the time taken does not increase with the size of the credit.

Poor performance of loan processing of a particular bank as compared to its peers is also an evident indication of the presence of inefficiencies. Implementation of lean six sigma methodology in loan processing commands a better efficiency. Overall it results in reduced cost and time. All these call for an undeniable place among the tops in the industry.


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