Credit and Finance for MSMEs: Launched by Prime Minister 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 sanctioned loans has remained in single-digit while the disbursement rate has remained above 90 per cent with 2,14,534 loans involving Rs 62,105 crore disbursed till the end of FY21, according to the MSME Ministry’s data. This is 5.4 per cent of the Rs 11.48 lakh crore bank credit deployed in January this year to micro and small enterprises, as per RBI’s data. 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 Jinand Shah, Chief Executive Officer, Online PSB Loans that operates SIDBI’s 59-minute loan scheme. In an interaction with Financial Express Online, Shah explains engagement with banks towards faster credit disbursement, slow rate of sanctioned loans, addressable market opportunity, targets for this year, and more. Edited excerpts below:
The quarterly disbursement rate has been consistently above 90 per cent from last year till March this year. In fact, it hasn’t deviated from 93 per cent. Do you see banks being proactive in lending through this scheme?
The Sanctioned-to-disbursement ratio has to be above 90 per cent. 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 mostly due to pre-disbursement conditions not fulfilled by the applicant. Post sanction if the application is not disbursed then there is always a question on the bank. So above 90 per cent ratio is what we want to continue ahead as well. There are a few banks that are very active and positive towards sanctioning and disbursement while there are others where we have to push from our end. It 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 branch 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 numbers of loans sanctioned and disbursed are growing but we have still touched the tip of the iceberg only as the market is huge.
The quarterly growth in sanctioned loan applications last year has been only around 5 per cent or less than that. Are you looking to speed up the sanctioning rate this year?
We want to grow above 10 per cent 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 as well. We wanted to get these two data points right. Here also, bank awareness is important to ensure sanctioning and disbursement are happening. The number we have touched is quite small as compared to the market in front of us. We have hardly touched 1 per cent of the 6.3 crore MSMEs in India through this scheme.
You mean there could be exponential growth in lending to MSMEs through this initiative as the credit gap in the MSME sector is huge?
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 then it will create a lot of hue and cry in the market. By infrastructure I mean bankers getting aware, the process is validated by all banks, delinquency ratio or non-performing asset (NPA) ratio is minuscule, then only it works out to be a great portal for banks to adopt. Now we are more focused on the MSME front. The turnaround time which used to be 60-90 days of banks has been reduced to 7-10 days now. Private banks and NBFCs used to offer loans against property in 10 days, here without property, disbursement is happening in 10 days. 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 quite high but we would like to reach double the number of current sanctioned loans or at least 5 lakhs by end of this year and 10-15 lakhs by end of next year of sanctioned 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 lending for a bank is reduced tremendously. Banks have limited bandwidth in terms of manpower at branches. For example, every branch would have three people in rural areas managing savings, loans, collections, and various government schemes. If they get a digital infrastructure like the 59-minute loan scheme then 80 per cent of their lending work is done by the system. 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 per cent of sanctioned loan applications belong to MSMEs in the manufacturing and services sectors while trading vertical accounts for another 30-35 per cent. 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.