Lenders go digital for bigger slice of small business loans


MUMBAI : Banks and non-banks are increasingly focusing on small businesses, launching separate digital platforms to sign these companies up and cross-sell products to them.

With the rising competition in retail loans, and large, rate-sensitive corporates not quite eager to borrow, lenders expect small companies to fuel the next round of growth, and are coming up with credit and other business solution requirements for them.

For instance, Aditya Birla Capital is planning to launch a platform for small businesses in February-March. It wants to cross-sell products to existing micro, small, and medium enterprise (MSME) borrowers and provide value-added services. A person aware of the development said the company plans to allow MSMEs to access services from other clients of the Aditya Birla group. While its main focus will be on secured loans, it will also eye unsecured credit.

Vishakha Mulye, chief executive of Aditya Birla Capital said at the earnings call on 7 November that its digital platform will connect existing and new customers through mobile, web, and application programming interfaces (API) by offering solutions across protection insurance and financing needs.

In October, HDFC Bank launched SmartHub Vyapar Merchant app, a payments and banking solution for merchants. According to the bank, it allows instant, digital and paperless merchant onboarding for HDFC Bank customers and allows merchants to accept interoperable payments. As per data from the bank’s analyst call on 15 October, about 1.6 million had signed up under this app as merchants. The app, HDFC Bank said, will lead its effort to enable 7 million merchant acceptance points by the end of the current fiscal.

Experts said that while some fintechs already provide such services to small businesses, banks, and non-bank lenders would have a lot more data to work with. Also, the greater focus on MSMEs stems from the search for better yielding assets—these loans are typically priced higher than retail credit.

While bank loans to micro and small enterprises grew 20.4% year-on-year (y-o-y) to 5.52 trillion in October, those to medium enterprises rose 31% to 2.21 trillion, showed data from the Reserve Bank of India (RBI).

“Origination and collection of low-ticket size loans digitally can make a significant difference to the overall operating cost structure and return ratios of the lenders,” said Anil Gupta, senior vice-president and co-group head of financial sector ratings at Icra.

MSME loans, qualifying as assets for priority sector advances, offer additional attraction to lenders provided the credit risks are managed adequately, he said. Superior digital capabilities, Gupta said, can drive all these efficiencies, apart from increased cross-sell abilities; however, this needs to be done at a scale to justify the investment costs.

Meanwhile, in April, ICICI Bank launched a digital ecosystem for MSMEs. Through its InstaBIZ app, the bank said, small businesses that are customers as well as non-customers of ICICI Bank, can use value-added services. Citing internal research, the bank said in April that MSMEs understand the benefits that technology brings in and are keen to adopt digital solutions.

The small business sector, with an estimated workforce of 110 million, has also gained importance owing to its status as one of the largest employment providers.

A report by consulting firm KPMG and industry lobby body CII said in November that these entities account for 30% of India’s gross domestic product and 45% of exports.

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