Innovative Responses by Lenders
Banks and NBFCs have done innovations and i ntroduced 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 flowbased 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 i ntroducing 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.”
“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 realtime 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
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-sizefits-all manner. U GRO adopted a sectorspecific 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 machinereadable 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.