The small and medium enterprises have been increasingly logging in to secure funding via online platforms. As more and more SME players move online the players are also tweaking the basic, online underwriting norms to ensure consistency and thereby reduce NPAs in this segment.
Experts explain that in physical underwriting, a bank looks at the company's bank statement, total number of credits/debits, cheque bounces and average balance which is calculated on proxies on three days in a month. While in case of online underwriting, the actual average balance gets captured. The difference can be up to 50-60 per cent.
"We not only look at total credits and debits, we 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 taken. The average balance can go up if the borrower has taken a loan too. We also look at the vendors who have a banking relationship with the customer and what is the borrower's dependence of them,'' says Amit Sachdev, Co-founder and CEO, CoinTribe.
Banks are also evolving towards score card-based lending for SMEs. They are starting to look at alternate forms of assessment and not just going by financials.
For instance, some banks look at the 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 the 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,'' says Sachdev.
In fact banks are also tying up with online players to source the SME loans. However, the bankers say that they do not completely rely on the checks and balances of the online players but they also follow their own underwriting norms.
"The SME market has huge potential and sometimes it is not possible to be present everywhere. That is why we have also tied up with online players for sourcing of loans. But we also follow our own due diligence process to check the credit worthiness of the company that we are lending to," said a private sector banker.
This SME players are also moving to online lending at a time when bank credit to this industry segment has slowed down. As per the Reserve Bank of India data, credit to small industries between November 27, 2015-Nov 25 2016, de-grew by 7.7 per cent as compared to a de-growth of 2.1 per cent a year ago. In the same period, bank credit to medium enterprises de-grew by 10.1 per cent as compared to a de-growth of 7.8 per cent a year ago. According to RBI guidelines, micro and small enterprises are those in which the loan size is up to Rs 5 crore.