Tag: MSME

What is co-lending, and how will work?, BFSI News, ET BFSI

Banking & Finance

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-By Ishwari Chavan

Under RBI’s model, banks can co-lend with all registered NBFCs, including housing finance companies.


The co-lending model has been around in the BFSI sector for some time now, but after the Reserve Bank of India issued guidelines in November 2020, co-lending has become a response to ease the liquidity crisis in non-bank lenders. The method aims to enhance credit flow to productive sectors, and banks and non-banking financial companies (NBFCs) have been increasingly exploring co-lending opportunities.

What is RBI‘s Co-Lending Model, and how will it work?

RBI’s CLM is one wherein two lender firms, in this case a bank and an NBFC, come together to disburse loans. Under RBI’s model, banks can co-lend with all registered NBFCs, including housing finance companies.

As per the guidelines, NBFCs and HFCs facilitate the origination and collection of housing loans while banks leverage their balance sheet strength to house the majority of the loan. This means that 80% of the loan will reflect in the bank’s balance sheet, while 20% in that of NBFCs or HFCs.

In simple terms, banks will lend to NBFCs, and NBFCs will pass it on to the priority sectors, since they have a greater reach.

NBFCs will be the single point of interface for the customers and enter into a loan agreement with the borrowers. The agreement should contain the features of the arrangement and the roles and responsibilities of NBFCs and banks.

The ultimate borrower would be charged an all-inclusive interest rate.

Considering the lower cost of funds from banks and greater reach of NBFCs, the primary focus is to improve credit flow to the unserved and underserved sectors of the economy, also known as priority sectors, and make funds available to the ultimate beneficiary at an affordable cost.

The agreement should contain the features of the arrangement and the roles and responsibilities of NBFCs and banks.
The agreement should contain the features of the arrangement and the roles and responsibilities of NBFCs and banks.

RBI has prescribed that a portion of bank lending should be used for developmental activities, for the priority sector, which includes agriculture, MSMEs, housing, and so on.

According to norms, both public and private sector banks have to lend 40% of their net bank credit (NBC) to the priority sector and foreign banks have to lend 32% of their NBC.

How is co-lending beneficial for lenders and borrowers?

The partnership allows banks to lend more funds to sectors and regions they do not have reach in. With the greater reach of NBFCs, the model allows banks to meet their total priority sector lending (PSL), while NBFCs get bigger and top rated borrowers on its books.

It also allows NBFCs to source clients, perform credit appraisals and disburse a small part of the loan amount, and enables banks to expand their lending business.

The end borrower gets accessibility to loans at very affordable and competitive rates, and is in turn included in the country’s financial ecosystem.

Recent co-lending agreements

> Last week, U GRO Capital signed a co-lending agreement with IDBI Bank to provide formal credit to underserved MSMEs.

> Last month, Bank of India entered into a co-lending arrangement with MAS Financial Services for MSME loans, IIFL Home Finance signed an agreement with Punjab National Bank, and SBI signed an agreement with Paisalo Digital.

> In July, YES Bank and Indiabulls Housing Finance Ltd entered into a strategic co-lending agreement to offer home loans.



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Bank credit gathers pace in Aug 2020, led by retail, industrial sectors, BFSI News, ET BFSI

Banking & Finance

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As India‘s economic activity revives, bank credit has expanded to various sectors, led by retail and industrial sectors, in August 2021.

According to the Reserve Bank of India data, retail segment showed an accelerated growth of 12.1% in August 2021, compared with 8.5 % a year ago, on higher volume in housing and vehicle credit.

However, credit growth in services sector fell to 3.5% in August 2021 compared with 10.9% a year ago, mainly due to contraction in credit growth to NBFCs and commercial real estate.

Credit to industry rose to 2.3% in August 2021, from 0.4% in August 2020. Loans to medium size units rose to 63.4% in August 2021 against 4.4% last year, RBI said.

Credit to micro and small industries stood at 10.1% in August 2021, from a contraction of 1.1% a year ago, and credit to large industries shrunk by 1.7% in August 2021 compared with a growth of 0.5% a year ago.

Credit to engineering, chemical and chemical products, gems and jewellery, infrastructure, mining and quarrying accelerated in August 2021 as against a year ago, and credit to basic metal, cement & cement products, construction, vehicles, vehicles parts and transport equipment’ either decelerated or contracted, RBI said.



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ICICI Bank to offer instant OD to sellers registered on amazon.in

Banking & Finance

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ICICI Bank on Monday announced that it has partnered with Amazon India to offer overdraft (OD) facility upto ₹25 lakh to individual sellers and small businesses registered on the e-commerce marketplace amazon.in.

“Driven by API integration, the partnership enables sellers to avail an OD from the Bank in a process — from application to sanction to disbursement — that is entirely digital. Even customers of other banks can avail the OD facility from ICICI Bank, if they are registered as sellers with amazon.in,” it said in a statement.

ICICI Bank launches digital banking solutions for corporates

Leveraging advanced data analytics, ICICI Bank has developed this new facility that functions on the back of a scorecard to instantly evaluate credit worthiness of sellers based on their financial profile, including Credit Bureau scores, it further said.

New expansion avenues

“This new and improved process will help the sellers, who may otherwise not get access to adequate credit when assessed in the traditional way of using only balance sheets, bank statements and tax returns. We believe that this new proposition resonates with our effort in developing path-breaking innovations for MSME customers and will empower them with new avenues of business expansion,” said Pankaj Gadgil, Head-Self-Employed Segment, SME & Merchant Ecosystem, ICICI Bank.

‘Amazon expects 85% new customers from tier-2 cities’

Vikas Bansal, Director-Amazon Pay India, said, “Our mission is to enable easy and trusted access to credit for sellers with transparent policies and at low costs. Our partnership with ICICI Bank will provide sellers across India with an OD facility instantly and digitally at affordable rates to meet all their current and future requirements.”

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ICICI Bank to offer instant overdraft to sellers registered on Amazon India, BFSI News, ET BFSI

Banking & Finance

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ICICI Bank has announced that it has partnered with Amazon India to offer overdraft (OD) facility upto Rs 25 lakh to individual sellers and small businesses registered on the e-commerce company’s online marketplace, instantaneously and digitally. Driven by API integration, the partnership enables sellers to avail an OD from the Bank in a process, from application to sanction to disbursement, that is digital. Customers of other banks can avail the facility from ICICI Bank, if they are registered as sellers with amazon.in.

ICICI Bank has developed this new facility that functions on the back of an industry-first scorecard to evaluate credit worthiness of sellers based on their financial profile including Credit Bureau scores.

The new credit assessment method offers convenience to the sellers as it does away with the paper-intensive bank statements or income tax returns for assessing credit worthiness. Further, it empowers small businesses and individual sellers who are ‘new-to-credit’ and ‘existing MSME borrowers’ to unlock the value of their digital transactions and get access to instant credit.

In a statement, Pankaj Gadgil, Head- Self Employed Segment, SME & Merchant Ecosystem, ICICI Bank said, “This process will help the sellers, who may otherwise not get access to adequate credit when assessed in the traditional way of using only balance sheets, bank statements and tax returns. This new proposition resonates our effort in developing innovations for MSME customers and will empower them with new avenues of business expansion.”
Benefits of InstaOD:

  • Online loan application: Sellers registered on amazon.in can apply for the OD instantly online through amazon.in.
  • Easy process: The Bank evaluates sellers making the loan approval process easy and quick. This is an improvement over the typical process which demands sellers to go through the tedious paper-intensive process of submitting income tax returns, bank statements and GST returns.
  • Instant sanction and disbursal: The approved OD amount is instantly sanctioned and disbursed into the seller’s current account
  • Pay for what you use: Sellers only need to pay interest on the amount of OD utilised by them
  • Auto-renewal facility: The OD is renewable on an annual basis, depending on the repayment track records of the seller

“We are prioritizing our efforts to help sellers on amazon.in bounce back from the disruption owing to COVID-19. We want to enable easy access to credit for sellers with transparent policies and at low costs” said Vikas Bansal, Director – Amazon Pay India, in a statement.



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Imitating a fintech firm not the right business model: Former RBI Deputy Gov

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Banks should avoid ‘imitating’ fintech companies in their attempt to re-imagine themselves but should look for meaningful co-operation with such companies to enhance their business.

According to SS Mundra, Former Deputy Governor, Reserve Bank of India (RBI), the process of re-imagination of business models for banks has already started. However, increasingly a number of banks have been evolving like fintech companies.

“Banks have to realise that fintech companies are competitive and nimble. So a bank trying to imitate a fintech company in totality is not the right approach to my mind and it is not the right business model. I think what is beneficial for both of them is to have a meaningful co-operation,” he said at the 14th edition of the two-day Banking Colloquium organised by CII, held virtually on Tuesday.

Such co-operation would help them both leverage on their respective strengths, Mundra said. While fintech companies have the strength of being nimble, innovative and fast-footed banks have the advantage of having a good resource base, reach, faith and trust of people and these can be complementary.

Banks should further avoid the temptation of introducing too many products or too many processes at too short an interval as it tends to leave both their staff and customers confused.

Rationalise branches

“There has to be a well-designed and well-decided pace at which such changes are introduced. Otherwise we have seen in some cases it may lead to unforeseen problem or a regulatory displeasure so one has to be conscious,” he pointed out.

At a time when digital has become a way of life, it is very important to take a “hard look” at the traditional branch-led business model, he said, talking about the need to rationalise branches.

“I am not suggesting that branches should go away but there is a need to reimagine the business model. One has to see which are the branches that are loss-making, contributing positively, can be downsized and can be completely done away with, and where you can rely completely on technology and where you can rely on agency arrangement. For every bank, it is important to do a complete holistic assessment of their branch network and how to derive maximum value from this,” he said.

According to Mundra, corporate lending, which once constituted the biggest chunk in banks’ loan book, has shrunk, with corporates deleveraging and finding alternative methods of financing themselves.

It would no longer be profitable for a bank to sell only a product to a corporate, as most corporates are now expecting “solutions” from banking system. “You need to adopt a solution-based approach if you want to do corporate banking,” he said.

One of the sectors which banks could look to ramp up is the MSME portfolio as there is more availability of information, date and GST has changed the entire landscape of the sector, Mundra said. “But here again the gradual movement would have to be from product to solution. In the retail sector, banks should leverage on the co-origination model,” he added.

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Report, BFSI News, ET BFSI

Personal Finance

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Mumbai, A majority of Indian companies (57 per cent) believe there is a need to revive the micro, small and medium enterprises (MSMEs) sector, which has been hit due to the COVID-19 pandemic, in order to boost rural employment, according to a report. According to the report by Genius Consultants, titled the ‘Sudden Rise of Rural Unemployment‘, the country’s economy was adversely affected by the pandemic and almost all sectors and industries were impacted, especially the MSME sector that faced a huge set-back.

The report, which is based on a survey, said most of the respondents believed that the reason behind the high unemployment rate is the lack of employment opportunities available in the areas concerned.

The survey is covered 1,100 business leaders between August 1 and September 10. They include those in sectors such as banking and finance, construction and engineering, education/ teaching/ training, FMCG, hospitality, HR solutions, IT, ITeS, and business processing outsourcing, logistics, and manufacturing, among others.

The report further showed that more than 57 per cent of the total respondents strongly agreed that the revival of MSMEs would aid in improving the current employment situation.

About 14.3 per cent of the respondents believe that the reason behind the rural unemployment was the lockdown restrictions, and another 14.3 per cent said it was due to the rise in the COVID-19 cases, according to the report.

The remaining respondents believed that it is a result of all reasons mentioned above that led to a spike in unemployment in rural areas, it added.

Meanwhile, the report found that over 85 per cent of respondents stated that the manufacturing sector, which has been witnessing a slowdown, has been a major contributor to the rise in unemployment in the rural areas.

As factories and production are one of the major contributors of rural employment and with the pandemic halting businesses, the manufacturing sector has majorly impacted rural unemployment compared to the service sector, it said.

Genius Consultants Chairman and Managing Director R P Yadav said, “Rural unemployment has always been a major concern even before the pandemic. With businesses and manufacturing slowing down, the situation has deteriorated even further.”

Yadav added that there is a dire need to bring in a swift course of action to elevate employment opportunities in the rural parts of the country.



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Buying Citi assets can be a game-changer for Kotak, IndusInd faces constraints, BFSI News, ET BFSI

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The retail and credit card business put on the block by Citibank India are best fit for Kotak Mahindra Bank and DBS Bank, while for HDFC Bank it is still a good asset though not a game-changer, according to CLSA.

The brokerage house had estimated the value of Citi‘s business in India at $2-2.5 billion.

HDFC Bank, Kotak Mahindra Bank, Axis Bank, IndusInd Bank and DBS Bank have emerged as the top five contenders to take over Citi India’s retail business that includes, credit cards, mortgages, wealth management and deposits. The race will be narrowed down to three, with whom Citi would negotiate a higher value.

How they stack up

While IndusInd Bank has the size and valuation constraints to acquire such an asset, the operations can be a game changer for Kotak Mahindra Bank because it can add 20% to the bank’s current retail loans, it said. “For Kotak Bank, the business adds 20% to its current retail book and increases its card segment by 3x (times),” the brokerage said in a note. “It is also complementary to its affluent customer base and Kotak Bank’s premium valuation will aid it in a purchase.”

It said Citibank’s affluent retail business also fits well with DBS Bank India’s premium offerings and banking relationships. DBS Bank does not have a credit card business in India.

For HDFC Bank, the acquisition won’t be a game changer as it is only nearly 6% of the lender’s total book, it said, while for Axis it will be a valuable acquisition, but valuations would be constrained, it said.

What’s on offer?
Citi’s total assets In India at the end of FY20, including credit extended to Indian institutional clients from offshore Citi entities, stood at Rs 2.99 crore.

The consumer banking business, which includes cards and loans against property, would be around Rs 32,000 crore. It also has a huge amount of savings accounts built over the last few years, which has a lucrative liability book and also credit cards, in which it was the largest among foreign banks in India.

The bank also had Rs 27,911 crore of loans to agriculture, affordable housing renewable energy and micro, small and medium enterprises (MSMEs). Of this, Rs 4,975 crore was to weaker sections, as part of Citi India’s priority sector lending obligations, results released last year showed.

Citi Bank has 2.8 million retail customers, 1.2 million bank accounts and nearly 2.6 million credit cards as of June.

Citi’s consumer business contributes about a third to the overall India business in terms of profitability, while total India business contributes 1.5% of profits to the global book. Overall, Citibank’s India unit had a market share of advances and deposits of 0.6% and 1.1%, respectively.

Citi credit cards
Buying Citi assets can be a game-changer for Kotak, IndusInd faces constraints

Citi started retail operations in India in 1985 and was among the pioneers of credit cards in the country. However, its share of credit cards has dropped from 13% to 6% now. Despite being the sixth-largest player in the space, Citi has the highest average spend on its card touching close to 2 lakh per card. The average spends per card for Citi is 1.4 times higher than the industry average, making it a profitable business for the bank in India. The other four major players have had nearly the same steady growth in spend per card at 11-12%.

Citibank’s outstanding credit cards as of February stood at 2.65 million, the largest among foreign banks in India, ahead of 1.46 million by Standard Chartered and 1.56 million by Amex. Citi India had 2.9 million retail customers with 1.2 million bank accounts as of March 2020.

At the end of March 2020, Citibank served 2.9 million retail customers with 1.2 million bank accounts and 2.2 million credit card accounts.



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Banks may see stress rising in retail, MSME segments by March, BFSI News, ET BFSI

Banking & Finance

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Domestic rating agency India Ratings on Tuesday maintained a stable outlook on the banking sector for 2021-22 while it expects an increase in stressed assets in retail and MSME segments by end-March.

It estimates gross non-performing assets (GNPA) of the banking sector to be at 8.6 per cent and stressed assets at 10.3 per cent for fiscal 2021-22.

“We have maintained a stable outlook on the overall banking sector for the rest of FY22, supported by the continuing systemic support that has helped manage the system-wide COVID-19 linked stress,” the rating agency said in its mid-year banks outlook released on Tuesday.

Banks will continue to strengthen their financials by raising capital and adding to provision buffers which have already seen a sharp increase in the last three to four years, it said.

Private banks

The agency said its stable outlook on large private banks indicates their continued market share gains both in assets and liabilities, while competing intensely with public sector banks (PSBs). Most have strengthened their capital buffers and proactively managed their portfolio.

Outlook on PSBs takes into account continued government support through large capital infusions (Rs 2.8 lakh crore over FY18-FY21 and further Rs 0.2 lakh crore provisioned for FY22), it said.

The agency has a negative outlook on five banks (about 6.5 per cent of system deposits), driven primarily by weak capital buffers and continued pressure on franchise.

It estimates that the asset quality impact in the retail segment has been higher for private banks with a median rise of over 100 per cent in gross NPAs over Q1 FY21 to Q1 FY22 (about 45 per cent for PSBs).

“Banks have also undertaken restructuring in retail assets (including home loans), which could have postponed an immediate increase in slippages. Overall stressed assets (GNPA + restructured) in the segment is expected to increase to 5.8 per cent by end-FY22,” the report said.

It said the MSME sector has been under pressure with demonetisation, introduction of GST and RERA, slowing down of large corporates and now COVID-19.

ECLGS stress

However, the government has supported the segment by offering liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and restructuring, it said adding that it expects that beginning Q3 FY22, a portion of such advances would start exiting moratoriums a part of which could slip.

GNPAs of MSMEs is expected to increase to 13.1 per cent by end-FY22 from 9.9 per cent in FY21. Stressed assets similarly would increase to 15.6 per cent from 11.7 per cent.

For corporate segment, the agency estimates GNPAs to increase to 10.2 per cent and stressed asset to increase to 11.3 per cent.

The rating agency has kept its FY22 credit growth estimates unchanged at 8.9 per cent for FY22, supported by a pick-up in economic activity post Q1 FY22, higher government spending especially on infrastructure and a revival in demand for retail loans.

Last week, the agency had changed the outlook to improving from stable for retail non-banking finance companies (NBFCs) and housing finance companies (HFCs) for the second half of FY22.

It said non-banks have adequate system liquidity (because of regulatory measures), sufficient capital buffers, stable margins due to low funding cost and on-balance sheet provisioning buffers.

These factors provide ‘enough cushion to navigate the challenges that may emanate from a subdued operating environment leading to an increase in asset quality challenges due to the second covid wave impacting disbursements and collections for non-banks’, it had said.



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HDFC Bank signs pact with NSIC to provide credit support to MSMEs, BFSI News, ET BFSI

Banking & Finance

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New Delhi, Sep 7 (PTI) HDFC Bank on Tuesday said it has signed a pact with the National Small Industries Corporation (NSIC) for providing credit support to the micro, small and medium enterprise (MSME) sector. Under this, the country’s largest private sector bank will also provide MSMEs with a set of specially-tailored schemes to enhance their competitiveness.

“HDFC Bank has signed a memorandum of understanding with National Small Industries Corporation to offer credit support to MSMEs across the country,” the bank said in a statement.

The bank branches will extend support to the MSME projects in the areas they are located and to other important industrial sectors across the country.

Rahul Shukla, group head (commercial and rural banking) of HDFC Bank, said the partnership will help reboot the economy and give it a required fillip.

“We believe this partnership with NSIC will help expedite the MSME sector growth, which is the backbone of the country both in terms of economic development and job creation,” he said.

The bank said it would accept loan applications forwarded by NSIC and consider sanctioning loans on a merit basis and as per its lending policy.



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Bank of India ties-up with MAS Financial Services for co-lending, BFSI News, ET BFSI

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New Delhi, Sep 7 (PTI) State-owned Bank of India (BOI) on Tuesday said it has entered into a co-lending arrangement with MAS Financial Services for MSME loans. The tie-up comes on the occasion of the bank’s 116th Foundation Day.

Co-lending was introduced by the RBI to increase the credit flow to the unserved and underserved sector by utilising the nimble-footed NBFC coverage to the informal sector.

BOI will leverage the reach of NBFC to build an MSME portfolio, Atanu Kumar Das, Managing Director & CEO, Bank of India said in a release.

Celebrating Foundation Day across all its 10 national banking group (NBG) offices, 59 zonal offices, 5,084 domestic and 23 overseas branches, and 5,323 ATMs, Das expressed gratitude to all the stakeholders.

The bank marked the special occasion by celebrating ‘Azadi Ka Amrit Mahotsav’ and pledged to continue serving the nation and its citizens.

On the occasion, the bank unveiled various new schemes for farmers and undertook several initiatives, such as tree plantation, extending financial help to 8,718 girl children towards their education and customer outreach programmes, among others.



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