Technology Backed by Strong Regulation Can Help Digitalisation of Loans, Says Kotak Mahindra Bank's SME Head

There is a perception in the market that SMEs are equal to NPAs but the case is otherwise

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Be it big or small business, entrepreneurs are entrepreneurs and the size of the company doesn’t matter – this is something you’ll hear very often. But the case is otherwise. Take the example of getting a business loan. 

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Even with all the noise around NPAs, banks would graciously lend to larger companies as against small businesses. 

SME credit problem is real and the gap is estimated to be around $600 billion. There is a perception in the market that SMEs are equal to NPAs but the case is otherwise. And yet, entrepreneurs in this segment suffer the most.

In a discussion with Entrepreneur India, Manish Kothari, Business Head – Corporate Banking and SME Head, Kotak Mahindra Bank explains why digitalisation supported by law could change the sector outlook however there is a long way to go.


Be it an SME or a larger organisation, there is a default risk in each segment. But when a bank is looking an SME versus larger corporate, the financial institution differentiates these two companies primarily on the basis of credit underwriting.  

Kothari says credit underwriting is a different process for an  SME as against a corporate and hence, the cost to serve both segments is a real game changer. With data being digitally available this can be relaxed. However, how many SMEs have a digital trail? 

According to industry estimates, there are roughly about 65 million SMEs in the country, of which close to 70-80 per cent fall under the micro-segment. Now, take an example of the manufacturing sector. Most of these businesses are either OEMs or manufacturing products for a larger player and are regularly dealing with cash with hardly any digital trail.

So, how does a bank look at lending them digitally? “For an end to end digital service, it depends upon what is the digital trail the customer is leaving, right? If I have to lend digitally as a bank, I need to be in a position to pick up some digital trail which I can use to process data,” Kothari pointed out.

With all the AI-driven innovation and unique business models, fintech start-ups in the lending space are working closely with the banks. However, as the fintechs firms continue to service unbanked businesses, banks are still working on their data to improve their turnaround timings. 

“Interestingly, banks have a lot of data in hand to backtest their algorithms as against the fintechs.  Additionally, with the help of technology, products which were earlier meant for larger players, banks can now offer to small players,” he said.


Having said, end-to-end digital service in this space will take time. Even though the banker agrees that GST data stack is definitely a game changer here but banks can rely on it entirely to make a final call.

“Over a period of time, big data can be a game changer but this is when you can do one’s documentation, verification and another process digitally. More importantly, the digital approach has to be backed by good regulation. Each piece will keep getting better and better in terms of what you can use,” he noted.

In other words, the queue outside a bank will get shorter but the lawmakers will have to decide the fate of digital banking. Considering RB's digital outlook, it is only a matter of time where banks can look at end-to-end digital process while servicing MSMEs clients.

Vanita D'souza

Written By

Entrepreneur Staff

I am a Mumbai-based journalist and have worked with media companies like The Dollar Business Magazine, Business Standard, etc.While on the other side, I am an avid reader who is a travel freak and has accepted foodism as my religion.