YES Bank strengthens its MSME lending

Reported by: |Updated: August 23, 2017

Sumit Gupta, group president & national head, Business & Rural Banking at YES Bank, speaks about the bank’s latest partnership with OPIC and Wells Fargo and its plans to increase MSME lending in 2017-18

Mehul Dani: What are the salient features of YES Bank’s latest partnership with OPIC and Wells Fargo? Any update on earlier tie-ups?

Sumit Gupta, group president & national head, Business & Rural Banking at YES Bank

Sumit Gupta: Under the agreement, OPIC will provide $75 million in financing and up to $75 million in syndicated financing jointly arranged by Wells Fargo Bank and OPIC to YES Bank. Specifically, $50 million of the financing will be used to expand support to women-owned businesses, while another $50 million will be used for financing SME businesses in low-income states. This agreement further strengthens YES Bank’s ability to fund and support the unique needs of SMEs and the entrepreneurial ecosystem, thereby boosting the developmental agenda in low-income states of India. It also underscores the potential of YES Bank’s business and financial model. This facility will support financing to women entrepreneurs in India for driving future economic growth and job creation.

You have also partnered with International Finance Corporation and Women Entrepreneurs Opportunity Facility by drawing a $50 million loan in March 2016 for mobilizing capital for women entrepreneurs. What is the lending from this facility so far? The bank has successfully executed two similar facilities over the past 2 years. Please provide an update in this regard.

Our partnership and MoU of $50 million with IFC Washington under the Women Entrepreneurs Opportunity Facility has been fully utilized towards financing of women owned MSMEs. This project was part of the Women Entrepreneurs Opportunity Facility (WEOF), the first-of-its-kind global facility dedicated to expanding access to capital for approximately 100,000 women entrepreneurs. It was launched by IFC, through its ‘Banking on Women’ program, and Goldman Sachs 10,000 Women in 2014. We remain committed to expanding access to finance to the unbanked and underserved population and achieve our vision of responsible banking. We continue to forge international linkages to support the needs of the MSME segment.

What is the total amount of loans given by your bank to MSMEs in India this year and last year? What is the total financing to women entrepreneurs in India in 2016-17 and its yoy growth?

As of Q1FY2018, our lending to medium enterprises and micro & small enterprises represents 21.4% of the bank’s advances amounting to Rs29,953 crore. In Q1FY2017, the lending to this segment amounted to Rs24,472 crore. We are focused on building a robust MSME franchise based on our expanding branch footprint along with a dedicated knowledge banking focus. Going forward, we continue to expect that the share of retail and MSME lending in our portfolio to grow as we realize our vision of ‘Building India’s Finest Quality Big Bank by 2020.’

How is the bank’s organizational set-up to meet the requirements of the SME segment? What is the support from SIDBI and Mudra?

We have a separate business vertical – Business Banking – to cater to the financial needs of MSME customers. Business banking is further divided into Small Business Banking and Emerging Business Banking, based on the customer turnover. Every customer is managed by a dedicated relationship manager who understands the financial needs of the customer and provides solutions accordingly. Business Banking is present in 200+ locations across India covering over 500 YES Bank branches.

We continuously engage with SIDBI on various ventures like funding energy efficiency programs of MSME units, funding manufacturing units under Make in India scheme, providing working capital finance to existing SIDBI customers, etc.

In addition to just pure play business relationships, we are working on initiatives like ‘Say YES to Sustainable MSMEs’, helping them enhancing their environmental and occupational health and safety performance to help them become globally competitive. Over the last 2 years, we have worked with over 1000 MSMEs in 9 states and helped reduce 6000 metric tons of CO2 emissions from these MSMEs.

We are also promoting Mudra loans through our strategic tie-ups in e-commerce funding and through our branch network.

Are SMEs in India investing in IT? Are you using social media for marketing your SME products? What is the ratio of online to offline loan applications from SME units at YES Bank?

SMEs in India have lately started investing in technology and automation to improve efficiency of their businesses. They have started realizing that digitization / automation is the need of the hour.

We use social media to spread awareness of our expertise and our Business Banking leverages on this to create knowledge and demand for our products. We have also started a dedicated ‘YES SME’ showcase page on LinkedIn to provide extensive knowledge transfer among MSMEs and various domain experts. This has been highly successful and helped us garner mind share among MSMEs and convert this into growing market share. Recently, we also launched the 360-degree ‘Say YES to GST’ campaign for MSMEs to help them become GST ready and leverage the advantages of this tectonic policy reform.

We do receive online applications for MSME loans and while this is not a major contributor as of now, we continue to invest in digital technologies to acquire MSME customers.

How has been the NPA with regard to SME loans in 2016-17? What are the improvements in risk management for MSME loans?

Our NPA levels are one of the lowest in the industry. We have been able to keep NPA levels low on account of robust customer selection. Our risk assessment models take into account various internal and external factors and are supported by a 3-tier architecture, which also consists of specialized sector focused product managers. We also have a strong collection mechanism in place. In the current year, we have recalibrated our customer selection models and strengthened our early warning system. Earlier, we had introduced an MSME scorecard to quickly ascertain risks for MSME lending and empower our sales and relationship managers to make an informed credit decision.

What are the targets and the expansion plans for supporting the MSME segment?

We plan to grow the Business Banking book at a rate higher than industry. Our focus is to build a granular portfolio. We will also be focussing on building the channel finance franchise of our business. We continue to focus on our differentiated knowledge banking philosophy and build teams of sector experts who can offer customised and specialised solutions addressing the needs of MSMEs. Such sector specific solutions along with investment in technology have helped us emerge as a bank of choice for the MSMEs.

YES Bank now has an established branch footprint of over 1000 branches and the branch channel is an important contributor to our business. We will continue to leverage this channel for customer acquisition and expansion in 2017-18.