Employees work in a bank in New Delhi, India (Photographer: Anindito Mukherjee/Bloomberg)

‘PSB Loans In 59 Minutes’ Sets Its Sights On Larger Advances

Government promoted online credit platform psbloansin59minutes is looking to expand its mandate to larger ticket loans, as it works towards the Narendra Modi-led administration’s attempt to improve credit access for small businesses.

The portal, whose shareholders include the Small Industries Development Board of India and large public sector banks, was launched in September 2018 with the promise of loan approvals within 59 minutes for micro, small and medium enterprises. So far the platform was accepting applications for loans upto Rs 1 crore.

According to at least three people familiar with the matter, discussions are underway to increase that limit.

There are discussions with banks to increase the loan limit to Rs 2 crore or Rs 5 crore, said a public sector banker, who spoke on condition of anonymity. The increase in limit would need to be approved by the board of participating banks, this banker explained.

A second public sector banker confirmed that discussions regarding an increase in limits is underway. The platform has been good for banks to develop leads for potential borrowers, this banker said while adding that the proposal to increase the ticket size of loans approved via the platform is being considered.

SIDBI declined to comment on the possible increase in credit approval limits on the platform. Representatives of the platform also declined to comment.

Scope To Expand

Psbloansin59minutes is an artificial-intelligence based platform or market place, initially set up by CapitalWorld Platform Pvt Ltd. It later changed its name to PSB Online Loans Ltd and is now owned by a consortium of SIDBI and five public sector banks, who together hold 54 percent in it.

As customers make an application for a loan on the platform, the AI system matches the borrowers’ profile with the credit parameters set by individual banks. An in-principle approval is given within 59 minutes but the final credit appraisal is conducted by the bank.

An industry executive with direct knowledge of the development told BloombergQuint that the platform has the capacity to accept loan applications up to Rs 25 crore. However, it is up to individual banks to take a decision on loan limits they are willing to approve via the platform based on their internal credit policies and systems, this person said.

Banks are happy with the results and the performance of the portal since its launch, which is why they are looking to expand the amount of credit they will provide to MSMEs through the portal, the person quoted above said.

At least 22 banks have signed up to offer credit to MSMEs through the platform. This includes 20 public sector banks, Kotak Mahindra Bank Ltd and IDBI Bank Ltd.

In written replies to questions posed in the Rajya Sabha, Shiv Pratap Shukla, Minister of State for Finance, told Parliament that around 112,043 applications were made on the portal for availing loans worth Rs 37,412 crore, as of the end of December 2018. Of this, 40,669 loan applications were approved with the banks sanctioning around Rs 14,088 crore. This implied a sanctioning rate of around 38 per cent.

More recent data on applications and approvals was not available.

Faster Turn-Around Time

The idea behind the platform was to improve the ‘turn around time’ for loan approvals. After the initial in-principle approval or rejection within 59 minutes, the platform claims that loans are disbursed within 7-8 working days.

This is still lower than the average turnaround times for MSME loans.

According to the SIDBI-Transunion CIBIL MSME Pulse report for September 2018, the average turnaround time for small business loans stood at 26 days in 2018, down from 32 days in 2016. However, the decline has been led by non-bank lenders who are turning around loan applications faster.

For MSME borrowers of public sector banks, the turnaround time remained at 31 days in 2018 compared to 41 days two years ago. Private banks had a turn around time of 29 days while non banking finance companies had the lowest turnaround time of 18 days.

Should psbloansin59minutes manage to bring down the average turnround time across bank borrowers, the benefit could be significant.

However, Saikat Roy, director and head of SME Ratings at Care Ratings believes that the target segment of the platform is currently small and limited to unbanked or first-time MSME borrowers. Even SMEs with a turnover of Rs 25 crore will need sizeable loans of above Rs 1 crore, unless they are a pure trading company, he said.

Roy added that it is also not clear if the portal is living up to its promise of collateral free loans.

“The loans portal was to be directly connected with the CGTF (credit guarantee trust fund scheme), but feedback for customers suggest that some in-principle sanction letters are asking for specific collateral requirements,” Roy said.

Roy added that a rise in MSME lending will come with a proportionate rise in bad loans. The majority of the delinquencies are in the personal loan or loans to individuals for business purposes segment, he said.

According to the latest MSME Pulse report for December 2018, the NPA rate in the micro loans segment stands at 8.5 percent, while the SME loans segment has an NPA rate of 11.3 percent, These delinquency rates, while elevated, have not risen substantially over the past two years, the report showed.