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Digitalization reaches Microfinance

Kotak Mahindra Bank has improved the rule-based engine for appraisal of micro loans:

Digitalization reaches Microfinance

Total advances of Kotak Mahindra Bank increased by 21% y/y to Rs2.7 trillion as at March 31, 2022. Advances grew 7.2% during Q4FY22. Of this, the agriculture division’s share stands at Rs252.07 bn, followed by tractor finance at Rs107.66 bn and micro finance at Rs30.52 bn. The microfinance sub segment gave the maximum y/y growth in percentage terms. B.S. Sivakumar, President & Business Head, Agri Finance & Key Leadership Team member, Kotak Mahindra Bank, updates and gives reasons for this growth: “The microfinance business of our bank grew by 50% y/y as of 31 March 2022. New customers, our distribution channel and demand for credit powered this growth.” The share of bank’s agriculture division grew by 16% y/y and that of tractor finance by 14%.

Women Portfolio

Customers of Kotak Mahindra Bank as on March 31 2022 are 32.7 million against 26 million a year ago and net customer additions of the bank in Q4FY22 was 2 million against that of 1.1 million a year ago. Sivakumar explains: “Almost all the borrowers of Kotak Mahindra Bank are sourced offline by field officers. A large proportion of the customers belongs to rural areas. Our entire retail microfinance portfolio comprises women borrowers with majority being self-employed and engaged in micro and small businesses.”

Expand Rural, Semi-Urban Markets

As on 31 March 2022, Kotak Mahindra Bank has a national footprint of 1700 branches and 2705 ATMs, and branches in GIFT City and DIFC (Dubai). 18% branches are in semi urban areas and 16% in rural areas. The bank has been approaching financial inclusion as an opportunity. Sivakumar adds: “We are witnessing significant demand for credit and we will continue to expand our presence in rural and semi-urban markets for growth of our loan portfolio.”

Flexibility: Size, Frequency

Microfinance loans by their nature are homogenous loans. Sivakumar elaborates: “We offer borrowers flexibility in loan size as per their requirements and we also offer them flexibility to choose repayment frequency for loans. Apart from lending, we also offer them suitable insurance products. During FY22, we started offering other banking products like savings bank accounts to our existing microfinance customers. Once the loan is sourced, a large portion of the operational process (from login to disbursement), is digitalized. Further, there has been improvement in rule-based engine for appraisal of microloans.”


The field staff/agents of the bank use Android phones, which have the bank’s loan origination system (LOS) and loan management system (LMS) app for microfinance loans. Through the app, clients are provided doorstep services. We are in the process of building a customer facing application which will provide self-service abilities to the customers at their convenience on their devices.

Digital Collections

Due to lockdowns and travel restrictions imposed on account of covid, both loan origination and collections for microfinance loans of the bank were impacted since the operations are field-intensive and involve visiting borrowers’ houses, conducting centre meetings and collection of cash. The geographies that had stringent and elongated lockdowns, were affected the most. Sivakumar bifurcates: “The customers who were engaged in agriculture, dairy and other essential commodities or services were least affected. Going forward, we intend to increase digital collections for microloans.”

Plans For Driving FI

In the earning statements by D. Kannan, Group President, Commercial Banking, during Q4 FY2022 Earnings Conference Call, the bank’s microfinance disbursements show a significant improvement over earlier quarters. Again, here demand is mainly driven by agri and allied activities as also small businesses. Customer cash flows are good, and this is helping the bank in restoring normalcy in its collections. There’s a marginal degrowth in the sales of tractors in FY’22 as compared to FY’21. However, demand in April’22 is again showing an improved trend. Farmer cash flows continue to be good, driven by better yields and prices. Outlook for tractor financing business is quite positive and the bank continues to maintain its leadership position. Demand for credit and utilization of existing lines has been strong in in the agri SME segment and the agri value chain.

Sivakumar reveals: “Outlets that cater to our microfinance customers are proposed to be scaled up in line with growth plans. We intend to scale up our geographical footprint by expanding into new states and newer districts in the states where we are already present. We believe that to further our goal of driving financial inclusion, we need to have physical presence where borrowers are.”

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