SMEs tweak underwriting rules with more online credit CHANGING RULES

Small and medium enterprises (SMEs) are increasingly trying to get funding through online. As a result, they are tweaking the basic underwriting norms to ensure consistency to reduce non-performing assets in the sector.

Experts said in offline underwriting, a bank looks at a company’s bank statement: credits and debits, bounced cheques, average balance calculated on proxies for three days a month. In online underwriting, the actual average balance is captured. The difference can be 50-60 per cent.

“We look not only at total credits and debits but also classify the entire banking to reflect a month-on-month profit and loss. This helps in better underwriting because you can understand what money is coming from revenue and what money is coming from a loan,” said Amit Sachdev, co-founder and chief executive officer, CoinTribe.

He added, “The average balance can go up if the borrower has taken another loan. We also look at vendors who have a banking relationship with the customer and the borrower’s dependence on them.”

Banks are also evolving towards score card-based lending for SMEs. They are starting to look at alternate forms of assessment; not only financials.

For instance, some banks | | | | Small and medium enterprises are trying to get funding through online In offline underwriting, a bank looks at a company’s bank statement In online underwriting, the actual average balance is captured. The difference can be 50-60 per cent Banks are also evolving towards score card-based lending for SMEs look at balances maintained and do an imputation of how much loan can be given. Some look at the repayment track record to take a decision on loan approval. They may also look at the credit bureau scores of the company’s proprietor or partners.

“Banks currently use a combination of external and internal underwriting. They are not ready to move from physical verification to online immediately. But online underwriting brings in operational efficiency,’’ said Sachdev.

Banks are also tying up with online players to source SME loans. But bankers claim they are not ready to move fully online yet.

The move to online lending has picked pace at a time when bank credit to the sector has slowed down.

According to the Reserve Bank of India (RBI) data, November 2015 and November 2016, fell by 7.7 per cent as compared to 2.1 per cent in the same period the previous year. According to the RBI guidelines, micro and small enterprises are those with loan sizes of up to ~5 crore.