Photo: Mint
Photo: Mint

As small borrower defaults surge, loan portal offers lenders monitoring service

  •’s services were so far restricted only to application, sanction and disbursements by banks
  • Slowdown in economic growth is hampering the loan-servicing capability of small borrowers

MUMBAI : Lenders will soon be able to monitor loans granted to small businesses through the web portal over their entire life cycle, said Jinand Shah, the portal’s chief executive.

The portal’s services were, till now, restricted only to application, sanction and disbursements by banks which had to manually collect documents and monitor it.

The extension of the portal’s service to monitoring loans throughout their life cycle will help lenders who are staring at growing bad debt among small entrepreneurs in a slowing economy.

This is also in line with Reserve Bank of India (RBI) deputy governor M.K. Jain’s statement on 26 November that banks need to focus on repayment capacity at the appraisal stage and monitor loans through the life cycle much more closely.

Bad loan rates in micro enterprises and small and medium-sized enterprises were at 8.7% and 10.6%, respectively in June this year, according to data from credit bureau Cibil. Banks already have a bad debt pool of more than 9.5 trillion, primarily from defaulting corporates.

“Right now, it (portal’s functionality) is up to disbursement and we are working with banks to roll out a project where throughout the lifecycle of a loan, we can digitally monitor it. A customer need not come every month or every quarter to submit documents and those can be done digitally through the platform," said Shah. came into focus after Prime Minister Narendra Modi last year announced a series of measures designed to help small businesses by giving them access to quick finance. The micro, small and medium enterprises (MSME) support and outreach programme launched by the government was meant to grant quick access to credit at attractive terms. Loan requests for up to 5 crore are approved online in principle in 59 minutes to be precise.

The turnaround time for small business loans, which was 90 days at the time of launch, has now reduced to less than 10 days, according to Shah.

“Now banks are getting more comfortable," he said. For the first six months after the launch, bankers were trying to gauge how the portal was working and since then their acceptance has grown, he said.

As many as 1.59 lakh of the more than 2 lakh applications submitted to the portal were accorded in-principle approval since the launch of the portal in November last year till 17 July. Of these, 1.33 lakh applications have been sanctioned, according to data released by Press Information Bureau in July. As on 7 June, banks have sanctioned 40,156 crore through this portal, according to a U.K. Sinha committee report on MSMEs released on 25 June.

Two-thirds of the applications processed by the portal are approved, said Shah. The reasons for rejection include higher debt requirement than what banks accept, he said.

The reasons for the rising defaults among this section of borrowers are multifold. Slowdown in economic growth is hampering the loan-servicing capability of small businesses. For small retail borrowers, slackening growth in rural income has been a pain point.