Tag: MSME loans

Union Bank MD, BFSI News, ET BFSI

Banking & Finance

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With digitization gaining pace, close to 50 per cent of retail and MSME loans offered by banks will shift to digital lending platforms over the next two to three years, Union Bank of India‘s Managing Director and CEO Rajkiran Rai G said on Thursday. Rai said digital lending is changing the banking landscape in a big way because of the availability of data and many ecosystem partners collaborating with banks.

“I feel that at least 50 per cent of the loans under retail and MSME segments will move to the digital lending platforms, right from sourcing to documentation level, in two to three years,” Rai said while speaking at Sibas 2021, an annual banking and finance conference.

He said the digital lending space is gaining traction and banks need to develop products that can deliver services online to customers.

Rai said he sees a big revolution in MSME lending going forward.

“The working capital lending to MSME will move from open credit like working capitals and cash credits, to very-targeted lending such as very specific invoice discounting and supply bill discounting,” he said.

Speaking about the entry of fintech in the banking space, he said initially it was thought that fintech will compete with banks, but now the relationship between the two has become more symbiotic.

“Now, fintechs are helping us (banks). They are no longer competitors to us. The digital lending space will be nothing but fintech tie-ups,” he said.

There are many products where fintechs are already working with banks, he added.

Rai believes banks need to continuously invest in technology and upgrade themselves.

He said the management bandwidth in the public sector space, at least on thinking about innovations and digitization, is quite less.

“We have the traditional people who are good in handling technology and managing the core banking system, but they are not in the space of innovation and developing new products,” Rai said.

He said public sector banks need to get new talent from the system who are adept in technology and can bring in innovations. PTI HV MR



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HDFC Bank aims to tap more rural MSMEs; plans to expand reach to 2 lakh villages in 2 years

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Towards its goal of rural expansion, HDFC bank is looking to hire 2,500 people in the next six months. (Image: Reuters)

Credit and Finance for MSMEs: India’s most valuable private lender HDFC Bank on Sunday said it is aiming to double its rural reach in the coming two years while it looks to “extend its leadership in MSME banking.” The bank is targeting expansion of its services to 2 lakh villages in the coming 18-24 months from the current 1 lakh villages. It is planning the expansion through a combination of branch network, business correspondents, business facilitators, CSC partners, virtual relationship management, and digital outreach platforms, it said in a statement. This will increase the bank’s rural outreach to around one-third of India’s villages.

Towards its goal of rural expansion, HDFC bank is looking to hire 2,500 people in the next six months. “India’s rural and semi-urban markets are under-served in credit extension. They present sustainable long-term growth opportunities for the Indian banking system. HDFC Bank remains committed to extend credit, responsibly, in service of the nation. Going forward we dream of making ourselves accessible in every pin code,” said Rahul Shukla, Group Head – Commercial and Rural Banking, HDFC Bank.

HDFC Bank, which claimed to be the second-largest lender to the MSME segment in India, offers its services to MSMEs in over 550 districts in the country. It already offers customised offerings such as pre-and post-harvest crop loans, two-wheeler and auto loans, loans against gold jewellery, and other curated loan products in unbanked and under-banked geographies. The bank saw its MSME loan book grow by 30 per cent from December 2019 to 2020 and stand at pre-Covid levels, according to a statement in March this year. It is also among the top banks in terms of extension of credit under the ECLGS scheme which stood at around Rs. 23,000 crore as of December 31, 2020.

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Earlier this month, HDFC Bank had signed an MoU with National Small Industries Corporation (NSIC) to offer credit support to MSMEs. The bank will accept loan applications forwarded by NSIC and consider sanctioning loans on a merit basis and as per the bank’s lending norms. It will also look at financing projects relating to MSME Sector at different places where bank branches are located or other important industrial centers in the country. Likewise, in partnership with the government’s Common Service Centre Special Purpose Vehicle (CSC SPV) in July, HDFC Bank had launched an overdraft facility of Rs 50,000- Rs 10 lakh for small retailers operating for a minimum of three years by providing six months bank statement from any bank.

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Banks disburse over Rs 2 lakh cr under ECLGS till mid-July, BFSI News, ET BFSI

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Nearly 17 months after the launch of the Emergency Credit Line Guarantee Scheme (ECLGS), banks have sanctioned Rs 2.76 lakh crore, with disbursals adding up to Rs 2.14 lakh crore till mid-July.

Similarly, the PM SVANidhi scheme, providing loans of up to Rs 10,000 to street vendors, has seen flows of a little over Rs 2,500 crore to 25 lakh vendors, although the internal target was more ambitious, with banks nudged to give loans.

Although the government has announced an increase in the ECLGS limit from Rs 3 lakh crore to Rs 4.5 lakh crore, officials do not expect a major surge, amid demands that eligibility norms be eased to enable more small businesses to use the window. When the scheme was announced last year, it was meant for micro, small and medium enterprises (MSMEs), but the scope was enlarged later as the demand was not sufficient.

Up to July 2, a little less than 1.1 crore MSME borrowers have been provided guarantee-based support amounting to Rs 1.65 lakh crore, which translates into an average ticket size of Rs 1.5 lakh. Under the originally announced scheme, MSMEs that had loans of up to Rs 50 crore at the end of February 2020 were eligible even with past dues of up to 60 days.

MSME industry groups say that the conditions are such that it is difficult for businesses to get a loan. “The requirements were such that only a certain set of entities with existing loans were eligible. Now banks are reluctant to lend. The government should have dropped the condition of prior credit because we are seeing cash flows being disrupted for a lot of MSME units,” said Animesh Saxena, president of Federation of Indian Micro and Small & Medium Enterprises (FISME).

Recently, the parliamentary standing committee on industry noted that there is a huge gap between sanctions and disbursals as banks feared defaults in the wake of the second wave, and also said that only half the amount has gone to small businesses.



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MSME loans risky even as banks transmitted rate cuts the most, BFSI News, ET BFSI

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Even as banks have transmitted rate cuts most to the MSME sector and education loans during pandemic, they are still perceived to be risky. The spread over one year benchmark lending rate is highest for such loans, according to a study by RBI economists

Spreads of weighted average lending rates (WALRs) on fresh rupee loans over 1-year marginal cost of funds-based lending rate (MCLR) for loans to MSME was 179 basis points (bps- one bps is 0.01 per cent) in May, factoring the median WALR at 7.28 per cent even as banks transmitted 132 bps of policy rate cuts during the pandemic between April 2020 and May 2021, analysis by the economists in a study published in the latest monthly bulletin showed. Such spread for education loan was 219 per cent and the banks transmitted 162 basis points. Put simply, even though these loans are risky, lending rates were lowered to revive activities.

“Despite the restructuring, however, stress in the MSME portfolio of PSBs remains high” noted RBI’s latest financial stability report (FSR). ” Given the elevated level of debt of the stressed cohort, the implications of business disruptions following the resurgence of the pandemic could be significant.”

” (The spreads) were uneven across sectors reflecting their varied credit risk profiles and business strategies followed by banks” the study noted. The spread was among the lowest in respect of housing loans, reflecting lower defaults and the availability of collaterals and highest for personal loans . “Personal loans (other than housing and vehicle loans) are mostly unsecured and involve higher credit risk and hence, the spread charged was the highest for other personal loans”. But in terms of transmission, personal loans were lower by only around 100 bps points during the period.

Boosted by The Emergency Credit Line Guarantee Scheme (ECLGS) disbursements to eligible categories, net credit flow to stressed MSMEs during March 2020-February 2021 rose to Rs 50,535 crore with the shares of public sector banks and private sector banks at 54 per cent and 35 per cent, respectively, according to the latest Financial Stability Report. The Emergency Credit Line Guarantee Scheme provides 100% guarantee to banks for loan portfolio of up to Rs. 3 lakh crore to eligible MSMEs.

“Going forward, close monitoring on asset quality of MSME and retail portfolios of banks is warranted” the financial” the FSR noted.

Rating agencies have warned of balance sheet implication for banks. “The reduced dent on the balance sheet of financial institutions over the last year may deepen further in case the regulator withdraws its supportive stance to eligible segments under the retail, agriculture and MSME industry” said the July review by Brickwork Ratings.



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Kerala Financial Corp declares moratorium on MSME loans

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Kerala Financial Corporation, a leading State Finance Corporation, has announced a one-year moratorium on principal to MSME enterprises and a proposal to restructure their loans as per Reserve Bank of India (RBI) guidelines to prevent such accounts from being categorised as non-performing assets.

The scheme is available to loans in the Standard Category till March 31, 2021, on the basis of applications from promoters received until September 30, 2021. No charges or additional interest will be charged for this facility, a spokesman for the financial institution said.

Also read: RBI allows lenders to revamp MSME accounts under Covid-19 related stress

Last year, the Corporation had sanctioned 20 per cent additional loan to customers whose repayments were prompt until March 31, 2020. The second wave of Covid-19 has once again affected the tourism sector and small industries. This has prompted it to offer another scheme for entrepreneurs in these sectors.

Additional loans, top-ups announced

They will be allowed an additional 20 per-cent top-up to their loan in addition to the 20 per cent provided last year, taking the lot cumulatively to 40 per cent, the spokesman said. The scheme has been formulated in line with the Emergency Credit Line Guarantee Scheme (ECLGS) offered by the Centre.

Loans by banks under the ECLGS are guaranteed by the National Credit Guarantee Trust Company. But this is not available to KFC, which has therefore formulated a scheme with more benefits for customers. So, while banks lend only 20 per cent of the outstanding balance in the customer’s account, the State financial corporation lends up to 20 per cent of the disbursed amount, thereby offering a higher amount.

Furthermore, while the Central scheme provides loans only to the tourism sector, Kerala Financial Corporation also includes small enterprises and the healthcare sector under the scheme. It also allows a 24-month moratorium on principal repayment. Since interest is payable during this period as well, customers will have the option of adjusting it against the loan.

The State Finance Minister had announced in the Budget 2021-22 that assistance would be provided to entities manufacturing products helping prevent the spread of Covid-19. Kerala Financial Corporation has come up with a new plan for such ventures, the spokesman said.

Assistance to fight Covid-19 spread

The scheme will be available to all sectors involved in Covid-19 prevention in the field of healthcare ranging from hospitals, laboratories, units involved in oxygen storage and distribution, manufacturing of ventilators, oxymeters, and other life-saving equipment.

Loans up to ₹50 lakh will be covered under the Chief Minister’s Entrepreneurship Scheme at seven per cent with a tenure of five years. For loans above ₹50 lakh, the interest rate will be seven per cent up to ₹50 lakh and interest for the remaining portion will be fixed as per the rating of the entity. Repayment period available is up to 10 years. Up to 90 per cent of the total project cost will be financed under the scheme.

Interest rates slashed

Kerala Financial Corporation has slashed interest rates for loans to healthcare, tourism and MSME sectors with the minimum rate being reduced from 9.5 per cent to eight per cent. The higher-interest rate slab has been reduced to 10.5 per cent from 12 per cent. Interest rates are determined on the basis of the rating of the entity.

The lower interest rate is usually applied from the loan reset date (month of borrowing) of the respective enterprise. But it has been decided that on this occasion, the benefit of lower interest rate will be available to all eligible customers from July 1, 2021.

The Finance minister had also announced that the loan assets of the company would be increased from ₹4,700 crore to ₹10,000 crore in five years and that ₹4,500 crore will be sanctioned during this financial year.

The value of secured assets will be determined as per market value fixed by external valuers in line with the practice of most banks. The sanctioning power of district managers has been enhanced from ₹50 lakh to ₹2 crore. A special cell will be set up at the head office to expedite the approval and disbursement of loans to small entrepreneurs and startups.

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Gross NPAs of banks likely to decline in FY21 amid MSME schemes, restructuring, write-offs: CARE Ratings

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The year-on-year gross bank credit growth to MSEs in March had declined to its lowest level, amid the second Covid wave, since May in the financial year 2020-21.

Gross non-performing assets of banks are likely to decline in FY21 due to restructuring, write-offs, and resilience in the economy, rating agency CARE Ratings said on Wednesday. The decline is expected as several regulatory and government support schemes for MSMEs and others had helped borrowers to access liquidity and conserve cash flows. For instance, the moratorium on loan repayments for six months till August 30, 2020, Covid-related restructuring scheme for MSMEs till March 31, 2021, and for large corporates till December 31, 2020, Resolution Framework 2.0 scheme for personal loans and MSMEs till September 30, 2021, ECLGS to enable banks and NBFCs provide funding to MSMEs, TLTROs, special refinance facilities to NABARD/SIDBI/NHB to address sectoral credit needs, and extended partial guarantee scheme, the agency noted.

“The government had enabled loan of up to 20 per cent of an MSME’s total outstanding credit in the Rs 3 lakh crore ECLGS scheme. So, loans were guaranteed by the government and MSMEs got significant breathing space with immediate cash flows being taken care of so that they may not default and deteriorate their credit score, etc. Given that MSMEs generally have a significant share of NPAs, now that share will be much more muted than what we would have expected otherwise,” Sanjay Agarwal, Senior Director, CARE Ratings told Financial Express Online.

Gross NPAs had jumped by 43.7 per cent from Rs 7.1 lakh crore in March 2017 to reach Rs 10.2 lakh crore by the end of March 2018 following which the NPAs witnessed moderation and reached Rs 8.9 lakh crore by end of March 2020, the report said. The asset quality pressure witnessed by the banks over post asset quality review (AQR) had been reducing in a couple of years prior to Covid. The movement in gross NPA had declined to Rs 9 lakh crore in FY19 and to Rs 8.9 lakh crore in FY20.

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Despite a challenging year (FY21), the quantum of gross NPAs of scheduled commercial banks (SCBs) is expected to decline by the end of March 2021 as compared with the previous year due to write-offs, lower slippage, restructuring schemes, and ECLGS support for MSMEs, the agency said in the report. However, as anticipated with the Supreme Court judgment allowing for the recognition of NPAs, FY21-end numbers are expected to be either similar or slightly above the Q3 FY21 numbers, it added. “Slippages are largely from MSMEs in retail. MSME slippages have been reduced because of the ECLGS,” added Agarwal.

The FY21 gross NPAs is estimated to settle at Rs 7.9 lakh crore, according to CARE Ratings. While public lenders’ gross NPA amount is expected to be around Rs 6.0 lakh crore at the end of March 2021 vis-à-vis Rs 6.8 lakh crore at the end of March 2020, for private lenders, the gross NPA amount increased from Rs 1.8 lakh crore in March 2018 to over Rs 2 lakh crore in December 2019. However, it is subsequently expected to have retreated to around Rs 1.96 lakh crore by the end of March 2021.

Moreover, write-offs’ share in gross NPAs has markedly increased post FY18, indicating that SCBs have cleaned their books taking a hit and recoveries have had a smaller share of the same, the agency said. “MSMEs right off every quarter by all banks has been very significant because the government had given quite a lot of equity and banks had made a lot of provisions. Now they have written off against the provisions. So it doesn’t reflect in the profit and loss statement but writes-offs are very significant,” said Agarwal.

Importantly, the year-on-year gross bank credit growth to MSEs in March had declined to its lowest level, amid the second Covid wave, since May in the financial year 2020-21. The credit outstanding as of March 26, 2021, was Rs 11.07 lakh crore – up only 2.5 per cent from Rs 10.8 lakh crore in March 2020, according to the RBI’s monthly bulletin. Moreover, the share of MSEs in India’s overall gross bank credit also continued to decline for the third straight month. From 12.11 per cent in December 2020, the MSE share contracted to 12.09 per cent in January 2021 and 11.8 per cent in February before slipping further to 11.3 per cent in March. The overall gross bank credit as of March 26, 2021, stood at Rs 97.2 lakh crore.

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Fino Payments Bank goes live with enhanced deposit limit of Rs 2 lakh for MSMEs, small traders, others

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Fino Payments Bank has 410 branches and more than 25,000 banking points. (Image: Fino Payments Bank)

Fino Payments Bank on Wednesday announced increasing its end-of-the-day account balance limit to Rs 2 lakh for customers including MSMEs, small traders, and retail customers. The bank, which became profitable in the fourth quarter of FY20, went live with the enhanced limit effective May 1, 2021. The move was in line with the Reserve Bank of India’s (RBI) announcement last month to increase the maximum balance limit at the end of the day for payments banks to Rs 2 lakh from Rs 1 lakh earlier in order to boost financial inclusion. “After reviewing the performance of payments banks and to encourage their efforts for financial inclusion it was decided to enhance the limit of maximum balance at end of the day from Rs 1 lakh to Rs 2 lakh per individual customer,” a notification by RBI on April 7 had said.

“The increased deposit limit allows our customers to save more money in their account. Further, our existing sweep account mechanism continues with our partner bank wherein customers can save funds in excess of Rs 2 lakh,” said Ashish Ahuja, COO, Fino Payments Bank. Up to Rs 2 lakh in the Fino account, the existing savings interest rate will be applicable while funds in the sweep account will get interest rates as set by its partner bank Suryoday Small Finance Bank.

Also read: RBI’s relief measures for MSMEs: 4 key takeaways from Shaktikanta Das speech; experts opine mixed bag

Fino Payments Bank’s micro ATM and AePS enabled financial services distribution network including 410 branches and more than 25,000 banking points allow people to open a new bank account, get debit cards, do deposit, withdrawal, or money transfer transactions, pay utility bills, loan EMIs, and buy health, life and motor insurance. Unlike regular banks, payments banks are not allowed to lend money to their customers, they can’t open Fixed deposits or recurring deposits, and also can’t allow a balance of more than Rs 1 lakh in any account. Currently there are five other RBI-approved payments banks operating in the country viz., Airtel Payments Bank, India Post Payments Bank, Paytm Payments Bank, Jio Payments Bank, and NSDL Payments Bank.

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IIFL Finance, Standard Chartered enter into co-lending partnership, BFSI News, ET BFSI

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Fairfax and CDC-backed IIFL Finance on Tuesday said its wholly-owned subsidiary IIFL Home Finance Ltd and Standard Chartered Bank have entered into a co-lending arrangement for extending MSME loans. Under this partnership, IIFL Home Finance Ltd and the Standard Chartered Bank will co-originate these loans and the IIFL Home Finance Ltd will service the customers through the entire loan life-cycle including sourcing, documentation, collection and loan servicing, IIFL Finance said in a regulatory filing.

“We believe this is one of the first co-lending partnerships after the RBI’s revised guidelines,” Monu Ratra, the CEO of IIFL Home Finance, said.

IIFL Home Finance in December partnered with ICICI Bank to provide affordable housing and MSME loans as a sourcing partner. In October CSB Bank had also partnered with IIFL Finance for sourcing and managing retail gold loan assets.

IIFL Finance is a retail-oriented non-banking finance companies (NBFC) with about 90 per cent of its Rs 41,000 crore loan book under the retail category.

In November last year, the Reserve Bank had came out with a Co-Lending Model (CLM) scheme under which banks can provide loans along with NBFCs to priority sector borrowers based on a prior agreement.

The CLM, an improvement over the co-origination of loan scheme announced by the RBI in September 2018, seeks to provide greater flexibility to the lending institutions. NKD MR



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