Lending and loan management glossary
Plain definitions of the terms that come up when evaluating a loan management system (written to be useful rather than to rank.
Lending vocabulary64 terms
Defined, not assumed
Definitions written so two vendors cannot disagree.LMS, LOS, DPD and 61 more
LMS in banking stands for Loan Management System is software that runs a loan after it has been sanctioned: disbursement, interest accrual, repayment allocation, waivers, certificates, closure and the audit record behind all of it.
It is distinct from LOS, a Loan Origination System, which handles application, underwriting and the credit decision up to sanction. Some vendors sell both under one name; the two do genuinely different jobs.
Loan lifecycle and interest
- LMS (Loan Management System)
- A loan management system is software that runs a loan after sanction: disbursement, interest accrual, repayment allocation, restructuring, waivers, certificates, closure and the audit record of all of it. In banking, LMS is distinct from LOS, which handles everything up to the lending decision.
- LOS (Loan Origination System)
- A loan origination system handles the pre-sanction stage: application capture, document collection, credit bureau checks, underwriting, scoring and the approval decision. It hands over to an LMS once the loan is sanctioned.
- Loan lifecycle
- The complete sequence of states a loan passes through: sanction, approval, disbursement, interest accrual, repayment, any restructuring or waiver, and closure. A loan lifecycle management system is one that enforces this sequence rather than storing loans as records.
- Repayment waterfall
- The fixed order in which a repayment is applied across what is owed. A common sequence is penal interest first, then normal interest, then principal. A fixed waterfall means any allocation can be re-derived and checked later.
- Penal interest
- An additional rate applied to overdue amounts, charged alongside normal interest. Well-built systems hold penal interest separately from normal interest throughout the ledger rather than merging the two.
- Simple interest
- Interest computed on the principal outstanding only, without interest being added to the principal on which future interest is calculated.
- Compound interest
- Interest computed on principal plus previously accrued interest. The rest period (monthly, quarterly, annually) determines how often accrued interest is capitalised.
- Accrual
- The recognition of interest as it is earned over time, whether or not it has been paid. An accrual run is the process that computes and records this for a period.
- Recompute
- Rebuilding interest accruals from a point in time forward, usually after a back-dated entry changes the balance history. Without it, a late-recorded repayment leaves every subsequent accrual wrong.
- Tranche
- A portion of a sanctioned loan released separately. Project and infrastructure lending commonly disburses in tranches tied to milestones, with interest accruing from each release date rather than from sanction.
- Sanction
- The formal approval of a loan and its terms, amount, rate, tenure, conditions. Sanction precedes disbursement, and the sanctioned amount is the ceiling on what may be released.
- Disbursement
- The actual release of funds to the borrower, in full or in tranches. Until disbursement, a sanctioned loan carries no balance and accrues no interest.
- Outstanding balance
- What a borrower currently owes, usually split across principal, accrued interest and penal interest. A reliable system derives this from the event log rather than recalculating it on each view.
- Waiver
- The formal relief of an amount owed, without payment. In institutional lending a waiver carries an approving authority, an order reference, and an explicit split across principal, interest and penal components.
- Write-off
- Removing a loan from the active book as unrecoverable, for accounting purposes. Distinct from a waiver, which relieves the borrower of the obligation; a write-off may leave the legal claim intact.
- NOC (No Objection Certificate)
- A document confirming a lender has no further claim against a borrower, issued on full settlement. Frequently required by borrowers as evidence of closure.
- Amortisation schedule
- A table showing each scheduled instalment on a loan, broken into interest and principal, with the balance after each. Standard in retail lending; less common where recovery is irregular or scheme-driven.
Controls, audit and architecture
- Maker–checker
- A control where the person who creates a transaction cannot be the person who approves it. In lending, this typically separates loan creation, approval and disbursement across three distinct roles so that no single individual can move money unilaterally.
- Running ledger
- The complete sequence of events on a loan (each disbursement, accrual, repayment and waiver) with the resulting balance after each. The primary document for proving how a balance arose.
- Append-only
- A record that can be added to but never edited or deleted. Corrections are recorded as new entries referencing the original. Deliberately less convenient than editing, and the reason an append-only ledger can be trusted.
- Audit trail
- The chronological record of who did what and when within a system. In lending, a meaningful audit trail covers loan transitions, interest runs and document issuance, and is accessible to a role outside the operations team.
- Data scoping
- Restricting what a user can see based on their organisational position, a region, a branch, a single borrowing entity. Scoping applied at query level cannot be bypassed; scoping applied by hiding menu items can.
- Multi-tenancy
- A software architecture where one deployment serves multiple independent customers with their data isolated from one another. Single-tenant means one deployment per customer.
- Deterministic engine
- A computation that produces the same result every time from the same inputs. In lending this matters because a balance that cannot be reproduced cannot be defended in an audit.
Collections and asset quality
- DPD (Days Past Due)
- The number of days a repayment has been overdue. DPD bucketing groups accounts into ageing bands (commonly 0–30, 31–60, 61–90 and beyond) to prioritise collections and classify asset quality.
- NPA (Non-Performing Asset)
- A loan on which repayment has been overdue beyond a defined threshold, commonly ninety days. NPA classification drives provisioning requirements and regulatory reporting.
- Provisioning
- Setting aside capital against expected losses on a loan portfolio, typically scaled to how overdue or impaired each account is.
- Promise to pay
- A borrower commitment to settle a specified amount by a specified date, captured during collections follow-up and tracked against actual receipt.
- Co-lending
- An arrangement where two lenders fund a single loan in agreed proportions and share its economics. Requires the system to split principal, interest and recoveries across partners.
Government and institutional lending
- Grant deduction
- A recovery method used in government on-lending where the amount due is netted against a grant or transfer the lender is already making to the borrowing body, rather than collected as a separate payment.
- On-lending
- Lending by an institution using funds it has itself borrowed or received, typically from a government or apex body, and passed down to end borrowers.
- ULB (Urban Local Body)
- A municipal corporation, municipality or town panchayat. In Indian state lending, ULBs are a common class of borrowing entity for infrastructure and development schemes.
- Scheme
- A defined lending programme with its own eligibility rules, interest rate and terms. Loans are sanctioned against a scheme, so a rate change on the scheme propagates rather than being rekeyed per loan.
Microfinance
- JLG (Joint Liability Group)
- A group of borrowers who guarantee one another's loans. Common in microfinance, and requiring group formation, shared liability tracking and group-level allocation that individual lending systems do not provide.
AI in lending
- Human-in-the-loop
- A design in which a model's output is reviewed and approved by a named person before it takes effect. The distinction that matters is timing: review before the record is written, not an alert afterwards. The GoDravix AI layer is being built with design partners on that basis.
- Propose-and-approve
- An architecture in which a model only suggests and a deterministic engine plus a named approver decide. The model never computes a financial figure: interest, allocation and ageing stay with the same code path that runs every live loan, so the arithmetic remains reproducible.
- Model hallucination
- Output that is fluent, plausible and wrong, produced because a language model predicts likely text rather than retrieving fact. The common misunderstanding is that hallucination is rare, or that better prompting removes it. It is managed with grounding, citations and approval gates, not eliminated.
- OCR (Optical Character Recognition)
- The conversion of scanned images into machine-readable text. Accuracy is high on typed and printed pages and much lower on handwriting, regional scripts and poor photocopies. Treating an OCR reading of a handwritten register as reliable data is a common and expensive mistake.
- Document extraction
- Pulling structured fields such as sanction amount, date, rate and borrowing entity out of an unstructured document like a sanction order or board resolution. Extraction is only useful where each field carries a citation back to the page or cell it came from, so a reviewer can check the working rather than the answer.
- Confidence score
- A number a model attaches to an extracted value to indicate how certain it is. It is not a probability of correctness. Its use is to set a floor below which a field is left blank and routed to a person, because a plausible guess in an amount field is worse than an empty one.
- Field-level citation
- A reference stored with each extracted value pointing to the page, coordinates or spreadsheet cell it came from. Citations make verification a glance rather than a re-read, and they are what allow an extraction to be defended when an auditor asks where a figure originated.
- Retrieval-augmented generation
- A method where a system first retrieves relevant source passages, then composes an answer only from what it retrieved, naming the source. It reduces invention without removing it. Retrieval that finds nothing relevant should end in an admission of ignorance rather than an answer assembled anyway.
- Natural-language query
- Asking a system a question in ordinary words instead of building a report or writing SQL. The useful version translates the question into a query against the same reporting layer that produces the standard exports, so a figure on screen is the same figure in the export.
- Straight-through processing
- Handling a transaction from entry to completion with no manual intervention. It suits high-volume retail flows and is wrong wherever a figure must be approved by a named person. In institutional lending, most of what is described as straight-through still needs an approval gate before money moves.
- Model drift
- The decline in a model's accuracy as the conditions it was fitted to change, for example after a scheme rule, a policy or the borrower mix shifts. Drift is found by monitoring outcomes over time, and the usual response is to suspend the model for the affected cohort until it is recalibrated.
- Explainability
- The ability to state why a system produced a given output, in terms a reviewer can check. For a deterministic calculation that means showing the inputs and the rule applied. For a model it usually means showing the evidence retrieved, which is a weaker claim and should not be presented as the first.
- Audit-safe AI
- Not a standard term, but a useful test: can every AI-assisted change be traced to a source document, a named approver and a reversible entry? If a model's output can alter a balance without appearing in the append-only audit trail as a proposal and an approval by two identities, it is not audit-safe.
- Reconciliation variance
- The difference between a figure carried in a legacy record and the figure a system recomputes from the underlying events. A variance is only meaningful when it is split across principal, interest and penal components and given a written disposition. One closed with a balancing entry is a plug, not a reconciliation.
Sector and regulatory terms
- NBFC (Non-Banking Financial Company)
- An Indian company registered with the Reserve Bank of India to lend without holding a banking licence, and therefore without accepting demand deposits. NBFCs sit under scale-based regulation, where reporting, provisioning and governance requirements tighten as the balance sheet grows.
- Priority sector lending
- A requirement that a defined share of a bank's credit reaches specified segments such as agriculture, micro enterprises, education and weaker sections. It shapes NBFC funding as well, because bank lending to an NBFC for on-lending can qualify, subject to caps and conditions.
- Asset classification
- The regulatory grading of a loan by how overdue it is: standard, sub-standard, doubtful and loss. Classification drives provisioning and reporting, and it follows the ageing calculation rather than an opinion, which is why that calculation has to be reproducible on demand.
- NACH mandate
- A National Automated Clearing House authorisation that lets a lender debit a borrower's bank account on a schedule. The mandate is registered once and then presented instalment by instalment. Failed presentations, rather than the mandate itself, are what a collections team actually spends its time on.
- Credit society
- A member-owned cooperative that takes deposits from and lends to its own members, registered under state cooperative law rather than as a bank. Many run books of thousands of small loans with a handful of operators. GoDravix is priced by portfolio size rather than per seat, which suits that shape.
- Member lending
- Lending restricted to members of a cooperative, society or association, where membership is itself a condition of eligibility. Loan limits are commonly tied to a member's shareholding or deposit balance, so eligibility rules sit with the member record and not only with the loan.
- Statutory return
- A report a regulated lender must file on a fixed cycle with a regulator, registrar or state department, in a prescribed format. That format rarely matches any internal report, so a system that cannot produce the return directly leaves the filing work exactly where it was.
- SHG (Self-Help Group)
- A savings-led group, usually of ten to twenty members, that pools savings and lends internally before borrowing from a bank or institution as a single unit. The institution lends to the group and tracks one account, while the group tracks its members.
- Federation
- A second-tier body that brings many self-help groups or village-level organisations under one entity, commonly for bulk borrowing and onward lending. A federation creates a lending hierarchy, so recoveries have to be attributed at both federation and group level rather than in one flat book.
- Centre meeting
- The scheduled group meeting at which a microfinance field officer collects repayments and records attendance, typically weekly or fortnightly. Collections are captured by meeting rather than by individual visit, so allocation across members happens after the collection is recorded.
- Board resolution
- A formal decision recorded in the minutes of a board or council, authorising a specified act such as borrowing a stated amount or naming signatories. In institutional lending the resolution is what makes a sanction enforceable, so its reference belongs on the loan record rather than in a file cupboard.
- Utilisation certificate
- A certificate confirming that funds released for a stated purpose were spent on it, commonly required in government and scheme lending before a further tranche is released. GoDravix holds each tranche as a separate approved release with its own accrual start date, so releases can be evidenced one by one.
- Interest subvention
- A subsidy under which a government or apex body bears part of the interest, so the borrower pays a reduced rate while the lender earns the full one. The difference is claimed periodically, which means the ledger has to carry the borrower rate and the claim as separate amounts.
- Payroll recovery
- Recovering an instalment by deducting it from the borrower's salary before payment, used for staff loans and some cooperative books. Recovery is close to certain while employment continues, which moves the failure mode to exits, unpaid leave and final settlement. Payroll system integration is on the GoDravix roadmap.
- Staff loan
- A loan an employer makes to an employee, commonly for housing, a vehicle or an emergency, at a concessional rate and recovered from salary. The rate is what causes trouble: where it sits below the prescribed benchmark, the benefit can be taxable in the employee's hands as a perquisite.
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