Banks re­fus­ing loans to MSMEs de­spite let­ter

The banks are ask­ing for ad­di­tional pa­pers for the sanc­tion of loans or seek­ing ad­di­tional pa­pers like prop­erty of sim­i­lar amount.

The Sunday Guardian - - & Comment Analysis -

said: “De­spite pay­ing the manda­tory fee and ob­tain­ing the sanc­tion let­ter from the ps­bloansin59min­utes por­tal, the bank re­fused to lend money as I couldn’t pro­vide the prop­erty pa­pers to mort­gage and se­cure the loan. The bank of­fi­cials asked me to show some prop­erty pa­pers and said that with­out them, they can­not sanc­tion the loan amount solely based on the sanc­tion let­ter I have ob­tained from the por­tal.”

Ravi Bha­tia, 45, who runs a fur­ni­ture store in Delhi’s Ti­lak Na­gar area, has a story sim­i­lar to San­tosh Ku­mar.

Bha­tia, af­ter get­ting a loan sanc­tion let­ter for Rs 45 lakh from the ps­bloansin59min­utes por­tal, ap­proached the bank, but the bank re­fused to give him any loan be­cause Bha­tia could not ful­fill the mort­gage and other such re­quire­ments set by the bank.

“I paid Rs 1,000 and got a sanc­tion let­ter for the loan from the por­tal. When I con­tacted the State Bank of In­dia (SBI) branch in my area to avail the loan, the bank of­fi­cial told me that I have to sub­mit ad­di­tional pa­pers like prop­erty of sim­i­lar amount; un­less I sub­mit the pa­pers re­quired by the bank, they will not lend any money,” Bha­tia told The Sun­day Guardian.

To ver­ify such com­plaints, when this re­porter con­tacted the SBI branch where Bha­tia had ap­plied for the loan, the of­fi­cial, on the con­di­tion of anonymity, said “We can­not pro­vide loans based on only the let­ter ob­tained from the ps­bloansin59min­utes por­tal. We need to se­cure the bank’s in­ter­ests, too, and for that, we are bound to put such a clause. We can­not ap­proach the por­tal to get our money back in case of a de­fault and, there­fore, the cus­tomer needs to un­der­stand that the sanc­tion let­ter has a lim­ited role only.”

As per pro­vi­sions of the loans-in-59-min­utes ini­tia­tive, once a firm up­loads key in­for­ma­tion such as tax re­turns and own­er­ship de­tails and makes a nom­i­nal pay­ment of Rs 1,000 with taxes, the por­tal gen­er­ates a sanc­tion let­ter that en­ti­tles the in­di­vid­ual to get the fi­nal loan from banks.

How­ever, in prac­tice, banks

On 2 Novem­ber 2018, PM Modi had made an­nounce­ments aimed at re­viv­ing coun­try’s MSMEs. One of these was about a ded­i­cated dig­i­tal plat­form—ps­bloansin59min­utes— to en­able peo­ple to ac­cess loans of up to Rs 1 crore in just 59 min­utes.

are turn­ing down loan ap­pli­ca­tions based solely on the sanc­tion let­ter gen­er­ated by the por­tal.

The ps­bloansin59min­utes por­tal got a cheerful ini­tial re­sponse and the day af­ter Prime Min­is­ter Naren­dra Modi made his an­nounce­ment, a statis­tics counter on the web­site claimed 1.69 lakh reg­is­tra­tions and loan ap­provals to the tune of Rs 23,582 crore.

The ini­tia­tive to pro­vide fast sanc­tion of loans to in­di­vid­u­als in­volved in the MSME sec­tor has been taken to in­crease the credit rate in the MSME sec­tor as the credit rate has been de­clin­ing for a long time. Data from the Re­serve Bank of In­dia (RBI) shows that banks’ lend­ing to mi­cro and small-scale in­dus­trial units fell from 3.1% of gross do­mes­tic prod­uct (GDP) in 2013-14 to 2.22% in 2017-18.

Over the same pe­riod, banks’ lend­ing to medi­um­scale in­dus­trial units also fell from 1.1% of GDP to 0.62%. Sanjay Gupta, a Delhi-based char­tered ac­coun­tant who has been work­ing with the MSME sec­tor, told The Sun­day Guardian: “One rea­son why pub­lic sec­tor banks are re­luc­tant to lend to MSMEs is that a sub­stan­tial pro­por­tion of these loans go bad.”

Ac­cord­ing to the MSME Pulse re­port, for pub­lic sec­tor banks, the level of non­per­form­ing as­sets (NPAs) among MSMEs went up from 13% in June 2016 to 15.2% in June 2018. The ps­bloansin59min­utes por­tal is a strate­gic ini­tia­tive of the SIBDI-led pub­lic sec­tor banks’ con­sor­tium in­cu­bated un­der the aegis of the Depart­ment of Fi­nan­cial Ser­vices (DFS), Min­istry of Fi­nance.

The por­tal sets a new bench­mark in loan pro­cess­ing and re­duces the turn­around time from 20-25 days to 59 min­utes. Sub­se­quent to this in-prin­ci­ple ap­proval, the loan will be dis­bursed in 7-8 work­ing days.

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