“We want to increase above 10 percent of the sanctioned rate this year.”
Credit and financing for MPME: Launched by Prime Minister Narendra Modi in November 2018, SIDBI’s 59-minute loan approval program for MSMEs has only succeeded in sanctioning 2,29,883 loans amounting to Rs 75,944 crore as of March 31, 2021. The Growth in sanctioned loans remained in single digits while the disbursement rate remained above 90 percent with 2.14,534 loans representing Rs 62,105 crore disbursed through the end of FY21, according to data from the MSME ministry. This represents 5.4% of the Rs 11.48 lakh crore bank credit deployed in January of this year for micro and small businesses, according to RBI data. The program, which offers approval in principle of a term loan or working capital loan to MSMEs and others from Rs 1 lakh to Rs 1 crore in 59 minutes, is aware that it is the major challenge of penetrating deeper into the MSME segment, according to Jinand. Shah, Managing Director, Online PSB Loans who manages SIDBI’s 59-minute loan program. In an interaction with Financial Express Online, Shah explains the commitment with banks for faster credit disbursement, slow rate on sanctioned loans, addressable market opportunity, goals for this year, and more. Excerpts edited below:
The quarterly disbursement rate has been consistently above 90% from last year to March of this year. In fact, it didn’t deviate 93%. Do you think the banks are proactive in lending through this program?
The sanctioned / disbursement ratio must be greater than 90%. Once a request has been sanctioned, it does not require much further processing for disbursement. If there is any fallout after the sanction, this is mainly due to pre-disbursement conditions not met by the applicant. After sanction if the request is not disbursed, there is always a question about the bank. So above the 90% ratio. 100 is what we also want to continue. There are a few banks that are very active and positive when it comes to sanctions and disbursements, while there are others that we need to push on our side. This is also a branch level issue because, say, remote branches take time to process, although at the end of the day it is the proactivity of the branch manager. So educating the branch is the most critical thing for this program to be successful.
Do you think MSMEs are familiar with the portal?
Knowledge of the program among MSMEs is the biggest challenge. This year, we aim to increase awareness of this target audience. As the number of sanctioned and disbursed loans increases, we have only yet touched the tip of the iceberg because the market is huge.
Quarterly growth in sanctioned loan applications last year was only about 5 percent or less. Are you looking to speed up the penalty rate this year?
We want to grow above 10 percent this year. We wanted to see for the first two or three years since launch how the portal works and if the banks sanction loans on time and if the sanctions also turn into disbursements. We wanted to get these two data points correctly. Here too, raising awareness among banks is important to ensure that sanctions and disbursements take place. The number we hit is quite small compared to the market ahead of us. We have barely reached 1 percent of 6.3 crore MSMEs in India through this program.
Also Read: MSME Jobs: Small Business Intent to Hire Growth in FY22 First Quarter Declines Amid Covid
You mean there could be an exponential growth in loans to MSMEs through this initiative, because the credit deficit in the MSME sector is huge?
If we create awareness on the portal, there will be exponential growth. However, we also want to make sure that the infrastructure is working. If you keep campaigning on a mass basis and the infrastructure doesn’t work, it will create a lot of hue and cry in the market. By infrastructure I mean bankers who realize, the process is validated by all banks, the default rate or the ratio of nonperforming assets (NPAs) is tiny, only then this turns out to be a great portal to adopt for banks. Now we are focusing more on the MSME front. The turnaround time that was previously 60-90 days for banks has now been reduced to 7-10 days. Private banks and NBFCs offered loans for property in 10 days, here without property, the disbursement is done in 10 days. It is a success. So the infrastructure is now created.
How many loans do you plan to sanction this year and probably by the end of next year as well?
Our targets are quite high but we would like to achieve double the number of current sanctioned loans or at least 5 lakhs by the end of this year and 10-15 lakhs by the end of next year of sanctioned loans. This goal is achievable if MSMEs are aware of the program and start applying, they can access credit as banks have to lend money to MSMEs anyway as it is a priority sector. If they receive qualified and digitally verified proposals, they will want to lend. Banks are happy to lend if their cost of lending is reduced. So, say, if I do the whole assessment process through the portal, the cost of loans for a bank is greatly reduced. Banks have limited bandwidth in terms of workforce in branches. For example, each branch would have three people in rural areas managing savings, loans, collections and various government programs. If they get a digital infrastructure like the 59 minute loan program, 80% of their loan work is done through the system. This is only KYC and manual verification to be done to disburse the amount.
Do you want to diversify the loan offer this year?
About 60-65 percent of sanctioned loan applications are from MSMEs in the manufacturing and service sectors, while vertical trade accounts for an additional 30-35 percent. This year we would look to expand the product offering to something like utility vehicle loan for MSMEs as today we do not have loan product to purchase utility vehicle through the 59 loan portal. minutes.
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