Narendra Modi in November 2018, SIDBI’s 59-minute loan approval scheme for MSMEs has managed to sanction only 2,29,883 loans involving Rs 75,944 crore as of March 31, 2021. The growth in approved loans has remained single-digit, while the disbursement rate has remained above 90 percent, with 2,14,534 loans involving Rs 62,105 crore disbursed until the end of FY21 MSME Ministry’s data. As per RBI’s data, this is 5.4 percent of the Rs 11.48 lakh crore bank credit deployed in January this year to micro and small enterprises. The scheme, which offers in-principle approval to a term loan or working capital loan to MSMEs and others from Rs 1 lakh to Rs 1 crore within 59 minutes, has awareness as it key challenge to penetrate deeper into the MSME segment, according to Jin and Shah, Chief Executive Officer, Online PSB Loans that operates SIDBI’s 59-minute loan scheme. In an interaction with Financial Express Online, Shah explains bank engagement towards faster credit disbursement, slow rate of sanctioned loans, addressable market opportunity, targets for this year, and more. Edited excerpts are below:Credit and Finance for MSMEs: Launched by Prime Minister
The quarterly disbursement rate has been consistently above 90 percent from last year till March this year. In fact, it hasn’t deviated from 93 percent. Do you see banks being proactive in lending through this scheme?
The Sanctioned-to-disbursement ratio has to be above 90 percent. When an application has been sanctioned, then it hardly requires any further processing for disbursement. If there is any fallout post-sanctioning, then it is primarily due to pre-disbursement conditions not fulfilled by the applicant. Post-sanction, if the application is not disbursed, there is always a question on the bank. So above 90 percent ratio is what we want to continue ahead as well. A few banks are very active and positive towards sanctioning and disbursement, while there are others where we have to push from our end. It is also a matter at the branch level as, let’s say, remote branches take time to process, even as ultimately it is about how proactive the branch manager is. So, educating the unit is the most critical thing for this scheme to be successful.
Do you think MSMEs are well aware of the portal?
Awareness about the scheme among MSMEs is the biggest challenge. This year we are targeting to create more awareness among this target audience. While the number of loans sanctioned and disbursed is growing, we have still touched the tip of the iceberg only as the market is enormous.
Last year’s quarterly growth in sanctioned loan applications has been only around 5 percent or less than that. Are you looking to speed up the sanctioning rate this year?
We want to grow above 10 percent this year. We wanted to see for initial two-three years since launch how the portal performs and whether banks are sanctioning loans in time and sanctioning is converting into disbursement. We tried to get these two data points right. Here also, bank awareness is essential to ensure sanctioning and allocation are happening. The number we have touched is relatively small as compared to the market in front of us. We have hardly touched 1 percent of the 6.3 crore MSMEs in India through this scheme.
Do you mean there could be exponential growth in lending to MSMEs through this initiative as the credit gap in the MSME sector is enormous?
If we create awareness about the portal, then there would be exponential growth. However, we also want to ensure that the infrastructure is working. If you keep on campaigning on a mass basis, and if the infrastructure is not working, it will create a lot of hue and cry in the market. By infrastructure, I mean bankers getting aware that all banks validate the process and that the delinquency ratio or non-performing asset (NPA) ratio is minuscule. Only it works out to be an excellent portal for banks to adopt. Now we are more focused on the MSME front. The turnaround time, which used to be 60-90 days for banks, has been reduced to 7-10 days. Private banks and NBFCs used to offer loans against property in 10 days; here, disbursement occurs in 10 days without property. That’s an achievement. So, infrastructure is now created.
How many loans you are looking to sanction this year and probably by next year-end as well?
Our targets are pretty high, but we would like to reach 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 approved loans. This target is reachable if MSMEs are aware of the scheme and start applying, they can access credit as banks anyway have to lend money to MSMEs as it is a priority sector. If they are getting qualified and digitally verified proposals, they would want to lend. Banks are happy to lend if their cost of lending is reduced. So, let’s say, if I am doing the entire appraisal process through the portal, the cost of borrowing for a bank is decreased tremendously. Banks have limited bandwidth in terms of manpower at branches. For example, every unit would have three rural areas managing savings, loans, collections, and various government schemes. If they get a digital infrastructure like the 59-minute loan scheme, then the system does 80 percent of their lending work. It is just KYC and some manual verification they need to do to disburse the amount.
Are you looking to diversify the loan offerings this year?
Around 60-65 percent of sanctioned loan applications belong to MSMEs in the manufacturing and services sectors, while vertical trading accounts for another 30-35 percent. This year we would be looking to expand the product offering to something like commercial vehicle loan for MSMEs as today we don’t have a loan product for buying a commercial vehicle via the 59-minute loan portal.