Kotak Mahindra Bank has reduced the time taken to process fresh SME loans by 60% through artificial intelligence (AI) and machine learning (ML)-based digital underwriting tools, a senior bank official said. The faster turnaround has prompted the country’s fourth-largest private lender to target doubling its SME loan book every three years.
“I thought we will double (the SME portfolio) every three-and-a-half years. At the current pace, we’ll be doing it in three years,” Shekhar Bhandari, President – SME Banking, Kotak Mahindra Bank, told FE.
The bank’s aggregate SME advances — covering Business Banking Assets, Agriculture Finance and Corporate SME — grew 16% year-on-year to Rs 1.09 lakh crore as of September 2025.
AI underwriting drives 60% reduction in loan processing time
According to Bhandari, the bank’s AI-powered unified corporate and SME portal, fyn, has enabled faster underwriting and end-to-end transaction processing across trade finance (LCs and bank guarantees), cash and liquidity management, loan disbursements and forex/remittances.
The use of technology has reduced the lead time for fresh SME loan requests from 7.5 weeks to 2.5 weeks — from document submission to crediting the loan amount. “The decision to sanction a loan or not happens within 18 days. Our endeavour is to bring it down to 14 days,” he said.
Loans up to Rs 1 crore are disbursed within a day if the borrower meets the eligibility criteria. Loans between Rs 1–7.5 crore follow the 18-day process, while exposures above `10 crore involve in-person discussions before final approval.
Bhandari said Kotak’s SME portfolio is evenly distributed across micro, small and medium enterprises, with each category accounting for at least 25% and none exceeding 40%.
Strategic client upskilling
He was in Chennai to announce Kotak Mahindra Bank’s partnership with IIT Madras to conduct a specialised AI workshop for select SME clients. The first cohort includes 35 entrepreneurs from sectors such as auto components, pharmaceuticals, trading, steel, plastics and gems & jewellery. The programme aims to build leadership-level understanding of AI and ML applications in manufacturing, energy efficiency and industrial operations, alongside guidance on government incentives and industry–academia collaboration.
The bank plans to conduct similar workshops in Mumbai and Delhi in the coming months.
While several lenders and NBFCs have tightened their stance toward small enterprises amid rising delinquencies and export uncertainties linked to US tariff actions, Kotak is not seeing stress in its SME book. “Every bank classifies sectors as watch, preferred and cautious — we follow the same. However, exporters are actually in the preferred category for us,” Bhandari said, adding that tariffs have had a limited impact on its customer base.
On growth areas, he highlighted MSMEs focused on auto manufacturing as a key target, as car sales are projected to expand 10x–20x over time. He also cited defence manufacturing, pharmaceuticals/APIs and hospitality as areas of interest.
“In textiles, the cost of production has risen, but revenues haven’t kept pace. That is one area to be cautious about,” he added.