SME Banking: From Problem to Opportunity

Reported by: |Updated: June 22, 2020

SMEs have been badly affected by covid-19 and the impact has cascaded down to banks and NBFCs. Banking Frontiers interviewed 9 BFSI organizations to understand their latest response. The findings are narrated in 6 different parts: (i) Impact on SMEs & Response by Lenders (ii) Analyzing the Impact – Sectors & Geographies (iii) Champion Channels during Lockdown (iv) Innovative Responses by Lenders (v) Getting Serious about Data (vi) Technology assisted interactions imminent.

Part 1 : Impact on SMEs & Response by Lenders

Hardika Shah

The MSME segment took the hardest hit among all businesses due to covid-19 lockdown. While sales and revenue came to a standstill for many businesses, they are finding it hard to curb expenses, leading to a cash crunch. This has resulted in stretched utilization of credit limits. Growth from fresh business has also been impacted. Challenges in regularization of limits and recovery of repayment of dues have been temporarily offset by the moratorium measures taken by RBI.
SMEs employ around 40% of India’s workforce, which is an estimated 80 million people, who are given an opportunity for livelihood and employment via low-skilled jobs. In a way, they form the backbone of the Indian economy. The national lockdown clamped by government from 25 March has brought down the shutters of about 48 million SME units in the country affecting the livelihood of over millions of workers. This has a double impact – on the repayment capacity of the SME units as well as on the workers’ income.

Impact on business & moratorium

The moratorium for loan repayment introduced by RBI for 3 months initially which was extended for another 3 months has been to some extent a solace to the sector. But the continuous lockdown of the sectors for over 2 months now has posed more challenges to the sector like working capital requirements and labour non-availability since many of the workers had already left for their homes.
Alexander George Muthoot, deputy managing director, The Muthoot Group, says:  “We have a broad clientele base that is spread across various sectors. The Covid19 pandemic has certainly impacted some sectors more than others by affecting their liquidity and weakening their repayment capacity. However, since our core business is extending credit on a secured asset i.e. Gold jewellery, the price of which historically has always appreciated and hence, we see less of a challenge from an NPA perspective. We feel it is a great opportunity for us to support more SME’s unlock this dead asset. Going forward, the potential for providing liquidity to the MSME sector is immense and we are confident that as we progress, phased easing measures will create a positive impact.”
Fino Payments Bank has 200,000 merchant points providing banking services to the MSMEs. As much as 95% of its MSME customers have their own business. Himanshu Mishra, SVP & senior divisional head (West & Central) at the bank, shared the details about the merchant channels: “Our merchants are mobile shop owners, kirana (grocery) shop owners, pan shop and chai shop owners and they are also providing our banking services. We do not provide loans to the MSMEs, but we provide our transaction services to them through our merchants.”
He shared details about the business during lockdown: “In the initial period of the lockdown, 60% of our business got impacted, as our merchants’ shops were closed. After the notification from the government about the opening of the merchant outlets, we had recovered 80% of our business in May. Our business increased to 104% in May end as we added new merchants.”
The last mile fintech NBFC, Kinara Capital, is focused on the MSME sector, and its customers got impacted with the nationwide lockdown and all their operations were paused. Founder & CEO Hardika Shah said: “The economic impact of the pandemic is far greater than anything we will see because it came with a velocity that was unexpected. Our priority was to safeguard our customers and our employees. We immediately stopped in-person visits and put our 1000+ employees in work-from-home system even before the first lockdown was announced. Certainly, our customers were impacted with the lockdown as this is affecting not only their lives but also the livelihoods of their workers.”
When RBI announced the moratorium, Kinara Capital extended the same to its customers even though it was not mandatory for the NBFC to do so and there was no requirement for banks to extend the same provision to NBFCs, which made it tough for them. “Many of our customers did opt for the moratorium but mostly, everyone is more eager to begin resuming their operations,”adds Hardika.

Adaption to the new normal

Subrata Das

Financial companies will continue to be working under the covid cloud. Social distancing and strict containment measures are the norms for firms. BFSI companies are looking to work with the latest digital tools and make them a part of their customer acquisition journey, which allows them to not only prospect and select SME customers digitally, but also underwrite and onboard them with minimum paperwork and
physical contact.
The lockdown and subsequent extension of moratorium to MSMEs across the country has also made companies cautious in selecting its customers and segments with much more intense scrutiny. Navin Saini, business head – Retail, Micro & SME, Arka Fincap, says: “We are looking to reduce our planned opex for the current fiscal and work with much more frugal and efficient workforce that can multitask and be more productive. We would also be embracing new ways of working including work-from-home, rostering of staff and using latest digital collaborative tools such as Google Hangouts to meet and engage with our teams and channel partners.”
Health and safety of the employees have been the topmost priority for the companies. U GRO Capital initiated migration to remote working system before the lockdown was formally announced. The lockdown had impacted loan disbursals of the company. U GRO conducted a customer sentiment survey covering all its customers, to obtain the first-hand customer feedback and work out possible scenarios from a portfolio standpoint.
The biggest challenge for SMEs is the cash flow, and each entity needs a fresh infusion of working capital to restart the operations. Many lenders are planning to prioritize meeting the needs of existing customers for their additional requirements before tapping the demand from new customers.
Subrata Das, Head Analytics at U GRO Capital says: “We are utilizing this tough time to make large strategic strides forward on analytics, technology, marketing and distribution strategy. For lending in post-covid times, we have created an evolved underwriting framework considering the past as well as the present, and we are ready to launch a cash flow projection based loan program called Sanjeevani. The Sanjeevani project is backed by GRO score and machine learning model on bank statements and will be implemented on our home-grown advanced ML rule engine.”

Supporting customers during lockdown

Lockdown came as a sudden jolt to the SME sector, which has been reeling under pressure even before covid with most having to close shops, offices, factories, and godowns. The impact has been severe in locations where covid spread is high like Delhi, Maharashtra, Punjab, Karnataka, Tamil Nadu and MP. Some of the MSMEs who could open under essential services or exemptions have been impacted due to the overall supply chain affecting the supplies and delivery of goods. This has resulted in low, delayed, and for some, almost
nil collections.
InCred has been catering to MSMEs in various sectors and the repayments and collections are impacted for most of these segments. Saurabh Jhalaria, CEO – SME Business at Incred, shares the customer support strategies: “During this crisis time, InCred has been supporting its customers and has granted moratorium to those requesting it. Approximately 50% of customers have opted for a moratorium on repayments. While things are moving in a very dynamic manner,
we expect that the overall business shall take at least 6-12 months to return to normal levels.”
According to a customer survey conducted by Magma, around 60% of its SME clients have resumed businesses, but at the same time they are currently operating at 30% capacity level. Manish Jaiswal, MD & CEO, Magma SME Business, says: “The return of the migrants who had left in the wake of the lockdown will be a challenge once the lockdown is completely withdrawn. Demand too will take some time to pick up. Most of the SMEs have informed us that their revenues are likely to be impacted by around 40-75%. Nonetheless, we are hopeful that given the push by the government of India under the Atmanirbhar Bharat project and the extension of the moratorium will
help SMEs.”
Manish Kothari, president & business head, Corporate Banking (Large Corporates, MNC, SME & New Age Companies) at Kotak Mahindra Bank, believes in supporting its existing customers during the lockdown: “For the first time ever, customers are facing nil revenues with fixed costs remaining intact, leading to losses. Cash flow cycles have also got broken, considering that the entire chain is impacted. In such a scenario, customers with high leverage or high fixed costs will find it difficult to run their business. Hence, as a bank, the focus now is to support our existing customers in the best possible manner while managing the risks arising from the lockdown. The obvious impact of that is lack of growth for this business.”

Part 2 : Analyzing the Impact – Sectors & Geographies

Saurabh Jhalaria

Auto, cement, steel, textiles, aviation, contractors, gems & jewelry, hospitality, transport, consumer durables, manufacturing and EOUs are some of the worst impacted sectors during the lockdown. Rathish R, vice president & country head – Business Banking at Federal Bank, identifies travel, tourism, hospitality, discretionary retail, real estate and EOUs among these as the most impacted by the unprecedented shutdown.
According to Kotak Mahindra Bank’s Manish Kothari, sectors that involve high ticket purchases, discretionary in nature or need people to move out have been impacted the most.
Sectors that are struggling are the ones impacted by decreased disposable income and lack of movement such as travel and auto-components. In these times, the businesses willing to adapt to the changing circumstances will have the best chance of recovery. Saurabh Jhalaria of InCred comments: “Export-oriented businesses like textile, gems & jewelry, fish & meat as well as process industries like refineries, petrochemicals, aluminium, iron & steel, where production cannot be stopped are expected to remain under stress in the near term. However, a big hurdle in revival of the MSME businesses, which employ large number of labourers, would be availability of labour.”
For Fino Payment Bank, lockdown had affected its domestic remittance business, as migrant labour from the industrial belt of the cities like Mumbai, Pune, Delhi, Gurugram, Hyderabad, Chennai and Bangalore have gone back to their native vilalges. Himanshu Mishra says this migration of the labour had affected 75% of our business, although we have recovered 50% of our domestic remittance business in May.
Apart from the obvious impact on sectoral demand, there is an impact on macro-economic factors. Subrata Das believes that there will be micro impact on each entity depending on the nature of their financials and the stage of their evolution. For example, a relatively young company that is yet to reach the desired profitability or a relatively older company which sells a low margin product – in both these cases 3-5 months of inactivity or subdued activity can wipe out profits of the past 1-2 years, he says.

Least impacted sectors

FMCG (food and sanitization), healthcare, pharmaceuticals, food, agri, paper and chemicals, agro, telecom, FMCG, IT and insurance are the least affected sectors during the lockdown. Manish Kothari points out that sectors that are essential for survival and support work from home are least impacted. For example, food processing, retail, pharma / medical supplies, eCommerce, telecom, agriculture, etc are some of these.
In general, entities that deal with essential goods and services and have been in business for several years will be more resilient to withstand the shock. They will see faster demand revival and will be better placed to bounce back using their cash reserves, cost-cutting initiatives and infusion of new credit. Subrata Das adds that it is heartening to see the several crucial measures initiated by both the RBI and the government around relaxation in asset classification norms, liquidity infusion and credit guarantee. While loss is inevitable, one prepares to convert challenges into opportunity,” says he.
Many traders are learning to go digital to better service their localities and have started to offer home delivery services. Hardika Shah shares her views: “For the MSME sector, the ones who can diversify their product offerings will have the best shot at surviving and growing their business. For example, demand for covid prevention products will be here to stay for some time to come.”
Sectors which are more dependent on labour would remain under severe pressure even after easing of lockdown. While liquidity problems would be addressed to some extent driven by government measures, many small businesses are wary of taking fresh loans even if they are backed by a government guarantee, as they are not sure how much demand will be there for their products when they resume business activity.
After the recent lifting of lockdown in some states, there is consumption gaining momentum. The pent-up demand for non-FMCG items and durables is visible on online marketplaces such as Amazon and Flipkart.

Which regions to recover fast?

Navin Saini

The most immediate challenge for SMEs remains liquidity for paying salaries, discharging vendor bills and meeting other fixed expenses necessitating emergency funds. Special economic package announced for SMEs to be implemented through banks will take time as the units have to satisfy the funding norms prescribed by the banks.
Alexander George Muthoot says the gold loan NBFCs are the source for immediate and easy funding for the SME sector. These loans can be a bridge finance to restart their operations till the bank finance is released. “Hence, we expect good business opportunity from all the regions across India,” says he.
In terms of regions that can expect business recovery, this will depend on the government’s guidelines on which ones are coming out of the containment zones and are being marked green. Tier 2 and 3 cities are better poised than larger metros to recover effectively in part due to availability of labourers and lower population density. These regions are coming out of the containment zones faster than typical manufacturing areas in cities like Mumbai.
Subrata Das says: “When it comes to region, it is a dynamically changing the landscape. Bangalore is currently less affected than Mumbai. This scenario could be transient, and we will have to watch out for zone-wise classification on real-time basis and evaluation on a case-by-case basis.”
He adds: “In this hour of crisis, our intention is to assign due weightage to customers’ previous records of repayment as well as assess the future cash flows and be ready with a solution for customers” added Anuj.
Saurabh Jhalaria expects that the revival would be faster in semi-urban and rural areas and tier 2 and 3 cities would give good business post lifting of the lockdown. Businesses like FMCG (kirana and grocery stores, food, and sanitation), pharmaceuticals, telecom services, IT hardware, security & surveillance that caters to the essential needs or are related to the enabling of digital access and delivery of services would be seeing a rise in demand.
The rural economy would show more resilience in current markets. Industry sectors like manufacturing, infra, real estate, which deploy semi-skilled or skilled worker segments will struggle before stabilising as many migrant workers will not come back quickly. The cost of low skilled or re-skilled workers would spike the labour costs in the short run. The overall dynamics of lower raw material costs but higher labour costs would play out in FY21. Manish Jaiswal maintains that consumer confidence arising from long-term stability and higher disposal income will be a key driver for pick-up in demand and the same will be contingent on vaccine discovery or low cost covid testing kits. “Living with uncertainty will be the new normal and those with low leverage, high agility will fare better in the covid business test,” says he.

Business Roadmap

In the current scenario, geographies which are less impacted and likely to bounce back faster are in the southern region such as cities like Bangalore and Hyderabad. Some parts of the north, especially, Haryana and Punjab, could be the next. The last ones would be the main centers such as Delhi NCR, Mumbai, Ahmedabad, Pune, Jaipur etc.
The lesser affected regions are expected to open faster and may throw up marginally better opportunities in the near term. Manish Kothari assumes that apart from sectors that cater to essential services, sectors that are expected to recover faster are those with smaller ticket discretionary spend, those that are catering to the rural economy, or those where government spending related consumption could happen like consumer durables, education, fertilizers, tractors, two-wheelers, cement, etc.
Rathish R makes a point: “We foresee a spurt in growth from clusters in Gujarat, Andhra Pradesh, Haryana and Maharashtra because of the central government’s Self-Reliant India Mission. e-commerce and home delivery, healthcare and companies that are into providing services which enable digital work and office systems, entertainment, etc, will see a rise in demand due to change in people’s behaviour.”
Fino Payments Bank’s business in rural areas has reached normal levels as migrants have left the cities and came to rural areas. The migrants are trying to establish their own businesses in their native places, and they are looking for new opportunities. The bank is receiving most of the new merchant requests from the migrants in the rural areas. Himanshu Mishra foresees these business probabilities: “We have seen rise in the business in rural India. In the coming days, we will see rise in the business from the industrial areas of Mumbai, Delhi, Surat, Valsad, Bangalore, Hyderabad, and Calcutta, as migrants would be back from their native place to cities. We have around 200,000 merchants and we add around 8000-10,000 merchants every month. During the lockdown period, awareness about our merchant points and their visibility have increased and we have added 17,000 new merchants,” says he.

Part 3 : Champion Channels during Lockdown 

Alexander George

BFSI companies have used different channels during the lockdown to provide better services to their customers and among them some of the channels have become the champion channels for them.
Says Rathish of Federal Bank: “All our digital transaction channels have witnessed a surge in volumes with Corporate Fed Mobile, our mobile banking application that caters to transactional needs of our SME and corporate customers is leading the show.”
Muthoot Finance has online platforms Muthoot Webpay and iMuthoot mobile app for loan and interest repayment. The app has customer centric features like pre and part-payment facility, part-release facility, waivers, etc, which have eased the pressure on its borrowers. “Internet banking of major banks and all PPI channels are integrated to our digital channels and is functioning flawless for the past 2 years,” adds Alexander Muthoot.
Following the lockdown, movement of the teams of Fino Payments Bank was limited and there was rise in the use of the bank’s wallet Bpay. Himanshu gives details about the change in preferences among the customers: “After the announcement of money deposit in to the Mahila Jan Dhan account, there was rise in the micro-ATM withdrawals – the extent of 40%. People were afraid to go to their bank branches as the branches were far from their homes and they preferred our customer service points for withdrawals.”
Specifically, in the context of SME lending, the loan onboarding process is likely to see massive shifts. Given that the practice of social distancing will remain in the foreseeable future, organizations will feel the need to centralize many last mile physical processes. Several of these processes also require regulatory sponsorship –such as KYC, signing of legal agreements, collecting repayment instructions, payments and on-site verifications.
Kotak Mahindra Bank sees that video-based communication has emerged as the biggest beneficiary of the lockdown. U GRO Capital has started seeing the relaxation of norms. For instance, video KYC is now allowed. There are solutions for electronic agreements and e-NACH is coming back.
Magma SME Business is paperless in terms of file processing and the company is now looking forward to online acquisition channels and integration with various APIs.
A major part of SME lending is the process of personal discussion, wherein a credit manager would visit the customer premises for a face to face discussion and physical inspection of the facilities. Anuj speaks about the crucial change: “Digitizing many of these steps will require the use of wide sources of alternate data, advanced algorithms and AI/ML systems for facial recognition, object identification, etc. We at U GRO Capital have initiated work on digitizing the
PD process and this will be a revolutionary development in the loan on-boarding process.”

Fintech partnerships move into SME space

There are new age fintech players which have emerged over the last 4-5 years and which have done significant work in acquiring MSME customers in niche segments. Their ability to focus on the target segments and design efficient financing solutions has made them price competitive and faster in terms of TAT.
Navin Saini reveals that this year, the focus of SME business at Arka Fincap would be to work with fintech partners, acquiring vintage MSME portfolios which meet their risk appetite and do co-lending.
He further adds: “We intend to partner with some of the niche fintech players especially in the field of education, healthcare, merchant finance and supply chain. Arka with its high credit rating of AA- / Stable from CRISIL, has the ability to raise debt efficiently wherein these fintech players usually struggle, which makes it a win-win for both the constituents of this partnership.”
The Muthoot Group too has ventured into handholding fintech companies for expansion of credit to SME sector through co-lending model in association with Capital Float.
U GRO Capital provides 60-minute approval for loans up to `50 million, which is an industry-first according to Subrata Das. The company is equipped with enterprise data store and in-house advanced analytics. Anuj comments: “We consider ourselves in the convergence between sector specialization and fintech expertise – and we have used the covid times to make faster progress on our mission to solve the unsolved needs of the SME sector in India.”

Part 4 : Innovative Responses by Lenders

Himanshu Mishra

Banks and NBFCs have done innovations and introduced product and services for their SME customers. Fino Payments Bank has already entered into an agreement with an NBFC to offer credit products to its SME customers. Himanshu Mishra provides additional details: “The project is still in a pilot stage; within 15 days we will be introducing it. It will be a complete digital model; customers can access it through their mobile on our portal.”
Federal Bank has introduced ‘Be Your Own Master’ (BYOM) platform for a completely unassisted lending journey for its existing SME customers. Rathish adds: “We are also deeply into digital upgradation of our existing processes to ease our credit delivery.”
Arka Fincap plans to primarily work on a hub and spoke model wherein, it will have physical branches in 8-10 major commercial centers as hubs and the rest of the nearby SME clusters would be spokes. For smaller loans up to `500,000 the entire process of customer onboarding and credit assessment is digital with zero physical human touch.
Navin Saini says: “For higher ticket loans, we are developing technology for embracing video-based customer interaction and large amounts of public data, which can help an underwriter do the credit assessment sitting in major hubs without the need to physically visit the customer. The products are also customizable according to the needs of the customer and there is no ‘one size fits all’ approach.”
When it comes to innovating financial solutions for SME customers, there is a need to differentiate between normal business stress and stress due to covid. Many good customers may show payment failure during the covid outbreak purely due to the unprecedented demand crunch. Programs and policies will be introduced with these aspects in mind. Anuj speaks about the cash flow methods: “Cash flow-based methods will be more important than ever before. The future cash flows will not be a simple extrapolation of past trends. New solutions should be based on a framework that can consider future cash flows after assessment of impact due to covid. At U GRO Capital, work is underway on all counts, and we will be ready to hit the market in a matter of days.”
Predictive modelling systems and credit scores are likely to deteriorate. The analytics rules system will be enhanced suitably to continue leverage benefits in terms of predictive power as well as process efficiency, avers Anuj.
Magma SME Business has focused on paperless file processing during Q4FY2019, and the NBFC has plans to build a platform on it for the end-to-end digital file processing. Manish Jaiswal says: “We plan to add supply chain finance as a segment to our SME business. This segment will fund the working gap based on the invoices raised by the clients.”
Muthoot Group has introduced online gold credit line for the benefit of its customers recently, wherein the customers can deposit their gold under locker with the company and avail loan online as and when they require without visiting the branch. Alexander Muthoot explains: “This facility is akin to the locker facility of banks with the distinctive feature of unlocking the value of gold kept in locker in case of need. This facility has received wide acceptance from the business community as interest is charged only on the amount utilized and not on the entire limit as is the case with bank OD facility.”
The company’s interest rate is comparable with banks and the business community can avail loan against security of their gold for any amount in case of emergency without having to comply with working capital assessment norms stipulated in the case of bank finance. Gold loan NBFCs with their expertise in lending against gold will be capable of speedy loan disbursal unlike banks.
Gold loans always had acceptance among the business community as a bridge loan to meet liquidity requirements pending loan disbursal by banks. The retail gold holding by the public in India is estimated to be the tune of 25,000 metric tons, market value of which is over `1 trillion. Compared to the total deposits of Indian banking sector of about `132 trillion (of which demand deposit is only `14 trillion), retail gold holding by the public is the most liquid asset in the hands of the people.
Kinara Capital has 30,000 customers and it has already resumed operations. Hardika explains that technology combined with data-driven insights can turnaround decisions and disbursements even faster for some types of businesses that are ready for growth. For customer reach, the company, she says, will introduce new ways to make it easier for the businesses to access and go through the application process by relying on digitization, such as online KYC and online underwriting. “We will continue to provide personalized support at all levels while providing new digital solutions to our customers,” she adds.
The new normal is to execute banking business with significantly lesser physical contact with customers. Manish Kothari shares the details about the digital strategy adopted by Kotak: “To adapt to the new normal, we are looking at strengthening the use of technology and digital in every aspect of the SME business like customer coverage, credit underwriting, documentation, transaction banking and monitoring such that we improve the efficiency of the customers’ business every way, including in their day-to-day dealing with the bank.”
Saurabh focuses on introducing cluster-specific products for the SME customers: “In general, we feel, though the opportunities would be high, we would tend to tread cautiously given the asset quality concerns. We are also working on identifying new loan eligibility, especially when the business has been virtually zero in the last 2 months. While we already have a range of EMI-based credit line facilities for MSMEs, available for the short, medium, or long-term tenure; we now plan to customize them to design sector- and cluster-specific products.”

Part 5 : Getting Serious about Data

Manish Jaiswal

Several BFSI organizations which participated in this report have dedicated IT and digital teams to serve SME customers. Federal Bank has a dedicated group in the SME business team which is constantly in the lookout for opportunities to automate and transform. The team members work hand in hand with the bank’s IT, MIS and analytics teams. Rathish reveals the details about the special IT team: “We have a dedicated IT team for ensuring functioning of our core banking and digital platforms 24×7. Over 60% of our borrowers are from SME sector and our digital platforms are most used by
this sector.”
Fino Payments Bank has a dedicated IT team that works on the overall merchant business and the bank keeps on improving its digital solutions available on its portals and Bpay. Navin Saini says: “We have already carved out a separate digital acquisition team which will scout for partnership opportunities with new age fintech companies. We also plan to have our own IT and data analytics team in the near future, which will help us develop our own data analytics engine.”
U GRO Capital provides 60-minute approval decision for loans up to `50 million. The company is equipped with enterprise data store and in-house advanced analytics.
The company’s investment in analytics and technology has resulted in early success for its loan origination platform which connects to 24 external APIs and can produce an in-principle decision within 60 minutes, which is an industry-first according to Subrata Das. He adds: “We consider ourselves in the convergence between sector specialization and fintech expertise – and we have used the covid times to make faster progress on our mission to solve the unsolved needs of the SME sector in India.”
Its customized business rules engine hosts all its credit policies and credit scores. “We have crossed `10 billion in disbursals and turned profitable in the first year and 100% of the loans have been processed through the system powered by our policies and analytical models,” beams Anuj.
At Kinara Capital entire business is focused on helping SMEs and driving financial inclusion of small business entrepreneurs. Hardika says: “We have invested in technology processes that have eliminated paperwork and redundancies in a typically complex lending process. As a fintech, we certainly have our own IT and digital teams, we were also an early adopter of building our own data science team.”
Incred has a large in-house IT Team to support all the businesses including MSME business. Saurabh says that the in-house team is working on developing and improving applications to give a world-class digital experience to InCred’s MSME customers.
Manish Jaiswal says the company has a strong product team which seamlessly integrates with digital and analytics team. Our proprietary scorecard – M-score – reflects industry best vintages and will keep investing to better customer experience,” says he.

Data analytics for SME customers

He also speaks about the use of data analytics to support end to end business: “We use data analytics at almost every leg of business to support end to end business, be it sourcing, underwriting, disbursal and collection. Our product teams deploy deep analytical technologies integrating vintages of external and internal data. We will continue to expand digitally as a way of life going ahead.”
Federal Bank has a separate division for data analytics. The bank is leveraging the team and the API tools for delivery of SME products through the BYOM platform.
Fino Payments Bank has 2 different analytical tools and the bank has heavily invested on analytics for providing real-time inputs to its merchants and team members. Himanshu Mishra says if any person from anywhere wants to become our merchant, he can make a request on our portal or call center. The request can come from any remote locations in the country and we have connectivity till gram panchayat level.”
The sudden and radical change in enterprise behaviours brought in by the pandemic has reduced the efficacy of established data analytics and machine learning models. Saurabh Jhalaria says: “We are taking this opportunity to better our analytics models and are stepping in with human intervention as needed. From a risk assessment perspective, the focus is on complementing dated financial / revenue data with alternate data procured in real- time.”

Data driven tools for decision making

Manish Kothari

For data analytics to perform optimally and conclusively you need a large amount of data sets. Arka Fincap in its initial phase has been relying a lot on the public data such as bureau, PAN, GST, social media, banking etc, which is largely available to all to not only acquire customers but for underwriting as well. The company is now looking to collaborate with fintech partners from within the lending industry and from other industries which have large customer base and use their transaction data for analyzing and underwriting their customers for lending.
Navin Saini reveals: “We are already investing to develop our own data analytics engine which will run on our data lake and keep getting better with the further increase in the customer base which we acquire over a period of time.”
Application of analytics in SME lending is lesser and mostly in one-size-fits-all manner. U GRO adopted a sector-specific strategy. Subrata Das gives details about the strategy: “We realized that the cash flows of an electrical equipment manufacturer will be very different from that of an educational institution or a pharmacy store – which implies that these entities need to be assessed in different ways. We have solved this using our proprietary solution ‘GRO Score’ which was implemented from day one of business operations.”
He says U GRO’s is a fast-maturing analytics practice with vertical competencies on data engineering, portfolio analytics and on-boarding science/ predictive modelling. “We are making rapid strides in taking advance data science and ML/AI based applications to the market. We have developed an in-house ML deployment engine and are in the final stages of implementing our first home-grown alternate data model for credit assessment. Work is underway to digitize processes that have always been physical – such as location assessment, alternate data-based fraud checks, facial recognition, and object identification”, says he.
To support analytics and other applications, U GRO has consciously designed a ‘zero data loss’ storage architecture where every bit of customer data is stored for future analysis in a central repository. This is bolstered by the API partnerships where bank statements, tax reports and credit bureau reports are converted into machine-readable data. The company has a custom OCR solution that can read P&L statements and balance sheets within an hour and the company has invested in globally acclaimed statistics and machine learning software.

Part 6 : Technology assisted interactions imminent

Rathish R

BFSI companies are increasingly relying on going digital through agile technologies, getting asset light, and providing more opportunities for work from home and reducing infra expenses wherever possible.
API integrations for real time online analytics and verification of data will be the key driver in improving SME business. Video KYC, video personal discussion, artificial intelligence, social media footprint, etc, are some of the new age technologies which are currently being either incorporated in customer onboarding journey or being tested for adoption.
Fino Payments Bank focuses on providing seamless services to its merchants. Now the bank is planning to launch chatbot service to take interaction convenience to the next level. InCred is already leveraging technology to reach MSMEs. In a post-covid world, its emphasis will be on digitizing the borrower journey and internal processes to enhance customer experience and drive operational efficiency. Saurabh gives details: “We are looking to enable digital-only interaction by promoting engagement through our web and mobile apps for video interaction, enabling real-time identity verification, improving our credit decisioning algorithms, and partnering with vendors to support e-signing of digitized loan agreements.”
U GRO Capital has a multi-pronged distribution model and technology provides crucial enablers to each channel – the GRO+ mobile app for its GRO partners, the GRO Xstream platform for BFI partnerships, Gro-Chain for supply chain platform and GRO-Direct for direct to customer (D2C) platform. Anuj explains: “We are a completely cloud-based platform with global standards of network infrastructure and information security. The covid situation is yet another reminder that touchless transactions and digital lending will prevail in the future. We have been on that journey and are in a sweet spot when it comes to our strategic focus, investments we have made and the properties we have already developed.”
Alexander Muthoot says that The Muthoot Group is striving to upgrade its technology and all its 5000 branches are under core banking platform and a best in class Customer Relationship Management (CRM) system. All the technology platforms are upgraded and updated as per the requirement on an ongoing basis.
In terms of easing the workflow, Magma’s SME Business has initiated eSign, eNACH and various other API integrations in its loan origination system. Manish Jaiswal says: “Magma’s SME business operates like a fintech at pre-disbursal level and our endeavour is to be the best phygital lender in the country. Given our investments in analytical technologies and API integrations, we shall be able to expand our distribution capabilities in the aftermath of covid.”
Change is the only constant and the covid crisis is quickly transforming how businesses operate and interact with their customers. This is a transformation that is easing friction and expanding reach, creating a win-win situation for SMEs as well as lenders. Very wisely, the BFSI players have converted the problem into an opportunity.

Boom in Digital Payments

The payment industry, which includes mobile wallets, UPI, payment gateways, credit debit cards and POS, has significantly increased its coverage and more merchants have started accepting digital payments during the lockdown. Digital payment options became popular ass more and more people could not either reach banks or even ATMs and there was evident fear of contracting covid through touch. Online payment systems have become more widely adopted since the traditional ways of physically going to a bank or making payments in-person with cash or cheques became inaccessible overnight.
“Since the lockdown, our customers are asking for new ways to make their EMI payments. So, in addition to our customer app and our website, we can be accessed via an aggregator using over 400 apps to make payments easily via digital wallets or payment systems such as PhonePe, Google Pay, Paytm and more”, adds Hardika of Kinara Capital.
InCred has been leveraging technology to source and deliver credit to MSMEs. The new age NBFC is using an integrated platform connected with large corporates for reaching the MSMEs and has been disbursing funds directly to customer accounts.
Covid has emerged as a big challenge, as well as brought opportunities for the companies to improve engagement with its customers and to improve processes and become agile. Manish Jaiswal explains: “We are using digital means to achieve various objectives. We have UPI enabled payment modes for collections, since during the lockdown cash collection has been a concern. We also have a Magma Payment Gateway where EMI payments can be directly credited to clients’ loan accounts instantly.
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