Re-engineering the Micro Enterprise Finance for enhancing efficiencies

Development Internship Segment

PRM 2017-19 (38)

Submitted To

Bank Limited

July, 2018
Acknowledgement

It is a matter of great pleasure to acknowledge the opportunity, invaluable guidance, enormous

assistance and excellent co-operation extended to me from the organization, Yes Bank Limited. I
wish to express my gratitude to my Reporting Officers Mr. Pravash Dash and Mr. Sushil Hablani
for helping me learn the ropes of banking industry and extending unconditional support
throughout the duration of my internship. I also thank all staff of Yes MEF team for extending
their full co-operation from time to time in order to help me for my project. Without their
guidance, this project would not have been possible. I also extend my heartfelt thanks to my
faculty guide, Prof. Rakesh Arrawatia, who has guided me in the completion of this project. All
of them have been immensely helpful in this project and my learning curve has been steep soley
because of their contribution.
Contents
List of Tables
Table 1 : MSME manufacturing limit........................................................................................................12

Table 2 : MSME service industry limit.....................................................................................................12

Table 3 : Facility types and solution details...............................................................................................14

Table 4 Customer selection criteria followed at sourcing..........................................................................14

Table 5 Sample for personal interview......................................................................................................15

Table 6 : Credit process sub steps..............................................................................................................18

Table 7 : Business personnel count............................................................................................................28

Table 8 : Credit personnel count................................................................................................................29

List of figures

Figure 1: Average Sourcing to Sanctioning TAT........................................................................................23

Figure 2 : Average TAT from sanction to disbursement.............................................................................24

Figure 3 : Pre-sanction query frequency....................................................................................................25

Figure 4: Post-sanction query frequency...................................................................................................25

Figure 5 : Bottlenecks at business stage.....................................................................................................27

Figure 6 : Bottlenecks identified in entire loan process.............................................................................28

List of Abbreviations

AOF Account opening form

BB Business Banking
BO Branch office
CAD Central Administration Division
CAM Credit Appraisal Memo
Capex Capital expenditure
CBL Cluster business leader
CE Credit Executives
CM Credit Managers
CPA Credit Processing Agent
CSIP Customer signed in presence
DDE Deatiled data entry
DLOD Drop line overdraft
FinnOne
LOS Loan origination Software
FL Facility Letter
FOIR Fixed obligation to Income Ratio
FTNR First time not right
FTR First time right
IT Internet Technology
KCC Kissan Credit Card
KFS Key Facts Statement
KYC Know your customer
LAF Loan application form
LLP Limited Liability Partnership
LTV Loan to value
MEF Micro Enterprise Finance
MO Mid office
MSME Micro, small medium enterprise
NOC National Operations
OD overdraft
OSD Local operations
OSV Observed seen and verified
PD Personal Discussion
PSL Priority sector lending
QDE Quick data entry
RBL Regional Business leader
RCG Risk control group
RCU Risk Containment Unit
RL/RPs Relationship leader/Relationship Partner
RM Relationship Manager
RTR Repayment track record
RUT Risk Unerwriting Team
SH State heads
SM Solution Manager
SOCP Self occupied commercial property
SORP Self Occupied residential property
SPDC Signed Post Dated cheque
TAT Turn Around Time
TL Term Loan
TSR Title search report
UDC Undated cheque
YBL Yes Bank Limited
Executive Summary
Title : Re-engineering the MEF Loan for enhancing efficiencies.
Organization : Yes Bank Limited
Reporting Officer : Mr. Pravash Dash (Executive Vice President – Rural Retail Banking)
Faculty Guide : Prof. Rakesh Arrawatia
Participants Name :Shivangi Vasudeo Manjarekar

Objective and Scope of the study :

The broad objective of the study is to streamline the MEF loan process, by studying existing
lending structure of MEF, Yes BB and other private banks and identifying bottlenecks that
hamper efficiencies and increase TAT.
Methodology:
The methodology included mining of 596 queries communicated between the MEF teams and
extensive personal interviews with Business, Credit, operations, IT, RCU and product team.
Sources of data:
The primary source of data was queries communicated between teams and process/policy manual
of MEF and BB. Secondary data pertaining to loan process of other banks were obtained through
their respective websites and communication with their official staff.
Major finding:
The TAT increasing bottlenecks were identified at each stage of process i.e. sourcing, pre-
sanction, disbursement and post sanction. RMs make multiple visits to complete documentation
which takes around an average of 7 working days, however, the sales target push them to login
the file with partial information , as reflected in pre-sanction queries which formed 65.93% of
total queries, leading to process non-compliance. This led to 23% increase in overall TAT. Also
repeated data entry into various applications like CAM, FinnONE etc add burden for RMs. The
query resolution delays by RMs coupled with CM’s long-distance travel for applicant PD
increased the TAT by 30% in sanctioning stage. MEF documentations policies were fund to be
non-conducive for its target segments as found in the query analysis.
Conclusions:
Process gaps were identified in three areas- process compliance, training & manpower and MEF
policy. Process compliance by the business team could alone cut down the TAT by 9 working
days. Along with that RMs lacked knowledge of MEF product and the required documentation
process. Since the operations of MEF is expanding, shared KCC’s CMs and Operations
personnel were further causing delay.
Recommendations:
First, business team could be provided training on product, documentation and customer service.
This along with reduction of data entry by the business team at login stage could further cut
down on queries. Second, dedicated MEF team with Credit executives & Credit team could be
located in branches in order to reduce the credit decisioning time. Third, MEF policies were
required to be modified taking into consideration unique target segments. Changes in policy in
terms of modifications in checklist documentation, CIBIL/sanction letter/CAM validity, making
operations process owner of Legal and valuation could help reduce TAT and gain efficiency.
 1. Introduction

1.1 Priority Sector Lending

In July 1968, at the National Credit Council meeting, it was emphasized that commercial banks
must increase its involvement in the priority sector lending viz agriculture and small scale
industries. As per revised guidelines the sector coming under PSL are as under :
Categories under PSL :
 Agriculture
 Micro and Small Enterprise
 Education
 Housing
 Export Credit
 Others

Annexure 1 covers the priority sector lending targets.

1.2 MSME Lending

Under RBI classification of Priority sector lending the target segments are as follows:
1. Agriculture MSME (Clause 6.3)
a) Food Processor b) Agro Processor
2. MSMEs (Under clause 7.0)
a) Manufacturing Enterprises (Under clause 7.2) : This covers Micro, Small and
Medium enterprise engaged in the manufacture or production of goods. These
enterprises are defined in terms of investment in plant and machinery.

Table 1 : MSME manufacturing limit

Enterprises Investment in Plant & Machinery

Micro Enterprises <=25 Lac

Small Enterprises >25 Lac & <=5 Cr

Medium Enterprises >5 Cr. & <=10 Cr.

Source 1 : RBI PSL circular

b) Service sector (Under Clause 7.2) : Bank loans up to 5 CR. Per unit to Micro and
Small Enterprises and 10 Cr. To Medium Enterprises engaged in providing or
rendering of services and defined in terms of investment in equipments.
Table 2 : MSME service industry limit

Enterprises Investment in Equipments

Micro Enterprises <=10 Lac

Small Enterprises >10 Lac & <=2.5 Cr

Medium Enterprises >2.5 Cr. & <=5 Cr.

Source 2 : RBI PSL circular

1.3 Yes Bank Limited

Founded in the year 2004 by Rana Kapoor and Ashok Kapur, Yes Bank limited is the first private
sector banking which has been awarded with Greenfield Bank licenses in two decades by the
RBI. The Q1 FY2018-19 data released states the YBL net profit grew by 30.5% and is Rs.
1260.4 crores. YBL has a balance sheet of Rs. 3,12,44,56,033.
Yes bank limited has been a forefront in embracing technology solution, with a mindset of
growing with their partners and customers.
The financial snapshots of Yes Bank are attached in annexure 2.

1.4 Micro Enterprise Finance

Yes Micro Enterprise Finance program also known as Yes Unnati will cater to short, medium and
long term credit requirement of MSME in selected geographies.
Scope & Nature of YES- MEF :
 Working Capital
 Capex (Business Expansion, Renovation, Asset purchase etc)
 New business in similar business line (only for individual/proprietorship firm)
 Takeover of existing MSME exposures that are in the form of OD/CC/TL.
Target Segment
Self Employed Professional and Non-professional constitute –
 Manufacturer/Processor
 Trader (Retailer/Wholesaler)
 Service Provider
Constitution of Borrowers
 Individual running business enterprise
 Proprietorship firm
 Partnership firm/LLP
 Corporations
Loan amount range
 INR 5 to 25 Lakhs
Facility type
 Overdraft
 Drop Line OD
  Term Loan
Security
 Collateral property
 3 UDCs
 Hypothecation of Current Assets
Branch service Area (from MEF approved branch)
 Customer Location 10Kms
 Property Location 20 Kms

Table 3 : Facility types and solution details

Facility type Tenure of Max.loan Purpose of loan Solution details

facility amount
Overdraft 12 months 20% of turnover Working capital, day Short-term loan
to day business which is
activity renewable on
yearly basis.
Interest charged
only on utilized
limit.
DLOP Upto 60 months 20% of turnover Working capital, Benefit the
business borrower by
expansion/renovation reducing the
etc original limit
every month as
per the tenure.
Term Loan Upto 60 months 30% of turnover
or 70%

Source 3: YBL MEF policy manual

Customer selection/ Go-No-GO- criteria

Table 4 Customer selection criteria followed at sourcing

Criteria Norms/Parameters
Age at the time of customer onboaring Min. 25 yeas
Max.60 years
Residential and business stability Min. 3 years
Min. business experience of promoters Min. 3 years
Premises ownership Either residence or business premises – owned
by applicant/guarantor/co-applicant
CIBIL Cut off score 700 (Min 650 with deviation)
CO-applicant/Guarantor Mandatory. Lady member in case of individual
Repayment Track Record 12 months RTR required – 25 lakhs
Else – max. loan amount upto 15 lakhs
Collateral As per guidelines
Source 4 : YBL MEF policy manual

Maximum Funding amount under YES MEF Main program

Minimum of the following:
1. As per funding eligibility Matrix (annexure)
2. Business requirement
 Term Loan (Business Purpose)- upto 30% of turnover
 Term Loan (CAPEX) – 70% of machinery/assest/project cost
 Overdraft /DLOD – working capital requirement
 Turnover based method : 20% of sales turnover
3. Repayment capacity (FOIR) (annexure)
4. Type and value of collateral (LTV)
5. Customer requested loan amount

2. Methodology
For this study primary and secondary research was carried out using qualitative and quantitative
techniques.

2.1 Primary research

For study YBLs MEF and BB operating manuals, TAT analysis, query analysis and personal
interviews were employed.
Operating manual:
Apart from this operating manual of YES MEF and YES BB was studied extensively.
Personal Interviews:
Using quota sampling and then purposive sampling - Business, Credit, OSD, IT, product, policy
personnel were interviewed from each of the YES MEF operational states viz Rajasthan, Gujarat,
Punjab, Hrayana, Madhya Pradesh, Uttarakhand, Maharashtra and Karnataka. Since the
Karnataka branch was opened couple of months ago, it was excluded from the study. The sample
sizes thus selected are as follows :

Table 5 Sample for personal interview

Department Sample size

Business 25

Credit 7

Operations(OSD&NOC) 3
IT 1

RCU 1

Product and process team 5

Total 42

Query analysis
Analysis of 596 queries was done. Queries that are being communicated via Microsoft outlook
between the Business, Credit, OSD, NOC, Risk and Policy team have been complied for gap
analysis and TAT increasing bottlenecks.
TAT analysis :
Teams were interviewed from each state and cluster to know the time taken for each process step
and time between one step to next. A national average TAT was arrived at each sub processes.
The same was verified by process team.

2.2 Secondary research

Micro enterprise loan processes of three private sector banks were used for benchmarking and
capturing best practices. The banks chosen were Ujjivan Small Finance Bank, ICICI Bank and
IDFC bank.

3. Process Flow
Following is the detailed process flow of MEF loans. Each stage has been described in detail.

3.1 Sourcing to Login

The sourcing is done by three ways – cold calling, Yes Banks current account database and
database obtained from CA firms. Once an applicant approaches the RP, the RP goes to the
applicant’s business place to initiate loan application process.

On visit the RP does following three things:

 Detailed PD on customers business history, credit history, future plans, family

background.
 Checks if the customers business loan requirement is catered by Yes MEF and also if the
customer is eligible for Yes MEF given his business and credit history.
 If above two conditions are satisfied, then a checklist is handed over to the customers
which has list of documents to be given for loan processing.

Checklist :
The Login checklist is a comprehensive pre-login checklist having list of documents which the
RPs have to execute. It mainly consist of KYC (applicant, co-applicant and business promoters),
assessment documents, business vintage proof, sanction and disbursement documents in case of
takeover case and collateral documents. After all documents are in place, the RP fills up the loan
application form and gets the document self-attested and stamped.

Credit appraisal Memo

CAM is an excel sheet which is owned by Business and Credit. All the credit analysis is done in
this sheet. The sheets in CAM are as below:
• RL/RP sheet
• Credit Visit
• Banking Habits
• PSL classification
• Cash Flows/Projections/RTR
• Max Loan eligibility limit calculations
• Proposal details
• Repayment Schedule
• Go no Go
• CAM Summary

FinnOne
FinnOne is a loan origination system, which is integrates from sourcing to disbursement. No MIS
is generated in FinnOne, however case is approved or rejected in this system.

RPs fills in the CAM sheet and FinnOne. A proposal number is generated as the file login is done
in finnone. The same number is filled in the application form. With Loan application form, CAM
sheet printout and checklist documents, a case file is prepared to be sent to the credit team.

3.2 Login to sanctioning

Post business login in FinnOne, the case is passed on to the Credit bucket in FinnONe.
Simultaneously the physical case file is also express couriered to the Credit team located at the
respective hub locations. At Pre-sanction stage- along with Credit there are three other teams
involved namely RCU, Legal and Valuer. Once the Credit receives the physical case file and the
case is received in the FinnOne, credit sends a confirmation to business by email. The CPA and
Credit manager follow following activities:

Table 6 : Credit process sub steps

Activity Sub-activity Process

Owner
 To check login documents as per check list and raise
File Check query if any CPA
Credit Query Prima facie checking of file and raise query if any to CM
business
QDE/QCE----DDE Sourcing details, Demographic
Finnone Details, Asset Details, Loan Details, Reference) CPA
De-dupe Consumer CIBIL, Commercial CIBIL CM
CERSAI, K-scope, AMLOCK, SMA, GOOGLE, CA,
De-dupe Equifax, FINNONE CPA
Business discussion with borrower, visiting his business
Credit PD place, visiting Collateral Security (property) ---- PD time CM
is taken excluding travelling time.

Scan and upload on Perfios. Banking involves calculating

monthly credit, monthly debits, monthly I/w cheques, CM and
Banking monthly o/w cheques, monthly I/w returns, monthly o/w CPA
returns, monthly cash deposits, monthly cash withdrawls,
etc.
CM reads property papers to understand chain/origination
Legal & etc. If ok, CPA scans the property documents and initiates CM and
Valuation legal & valuation CPA
Check RL/RP sheet- Check if details mentioned are
CAM correct and are as per application form, property details, CM
preparation existing loan details, limits applied, reference check,
group company details, major buyers/suppliers, call
references and buyers/suppliers
CAM CM
preparation Filling up of Credit PD Sheet
CAM CM
preparation Filling up of Banking Sheet
CAM CM
preparation Filling up of PSL Sheet
CAM Filling up of Cash Flow Sheet from financials, VAT/GST. CM
preparation Arranging FOIR & Limit
Filling up of CAM sheet - Dedupes in CAM, property
CAM valuation details, financial details, banking details, CM
preparation marking deviations, putting conditions,
strength/weakness

Mail body Preparing mail body for approval CM

 Follow-up for Lawyer and Valuer for soft copy. Check the
legal and valuation. Discuss the required changes.
Legal & Receive final hard copy. Briefly cross-check with soft CM
Valuation copy. Submit the hard copies to operations along with
pre-file. Co-ordiante as mediator between Ops team and
Lawyer/Valuer for changes required by operations in the
hard copies of the reports
Preparing FL based on sanction terms and conditions.
FL preparation Printing the FL, signature on each page, scanning the FL CM
& Issuance and then mailing it to RM
Taking printouts of all the de-dupes. Signature/initials on
each page by respective Credit Manager. Converting
excel CAM, e-mail approval, pricing approval into PDF
Preparation of and taking printouts of all the pages for putting it in pre- CM and
file file. This involves taking approx. 30-40 printout, CPA
punching and arranging them in file as per checklist.
Finally the pre-file is handed over to the operations team
for disbursement
Approval of case in Finnone. Most cases have 2 facilities
offered, i.e. OD & TL. In such cases, the whole Finnone
Finnone entry process is done twice. Based on amount finalized in CM
Approval sanction, changes in loan amount and ROI are done in
Finnone. Property details, applicant/guarantor/co-
applicant details are checked.
Providing clarifications/resolving query raised by OSD
Query on pre-file, confirming Legal & valuation charges, CM
Resolution confirmations relating to CTC requirement, confirmations
regarding insurance requirement, etc
MIS Maintaining MIS - throughout the life cycle of a CAM CPA

Risk Containment Unit Check

The RCU team is the team that checks the legality of the property collateral documents by
sampling and screening.
Sampling is done on trigger basis. RCU would do a sample check of valuation report. For all
cases sampled by RCU, the credit will provide photocopies of valuation report and property
documents.
No Objection certificates (NOC)/No due certificates (NDC)/ handwritten saving accounts
Passbooks/ liquid securities documents would mandatorily verified irrespective of
secured/unsecured loans.
Legal and Valuation
The legal and valuation part is done by the empanelled lawyer and valuer. In principle approval
is given even before legal and valuation. Final sanctioning and credit limits and terms are
decided after Legal and Valuation report is receive by the Credit. Credit is responsible for Legal
and Valuation and has to answer to queries raised by the OSD pertaining to the same. Hence
Credit is a mediator for legal and valuation of all cases.

3.3 Sanctioning to Disbursement

Once the loan is sanctioned for a case and facility letter is generated, the Business communicates
the sanctioning terms and conditions to the applicant along with a Key Facts Statement document
as prescribed by the RBI. Once the applicant accepts the facility letter, the case goes to the OSD
for disbursement process. OSD has a Non-discrepancy checklist (annexure) according to which it
checks the post sanction and sanctioning documents coming from Business and Credit team. In
case of any discrepancy, missing of documents – the OSD communicates the same to both the
teams via mail.

OSD processes the post-sanction documents- and raises disbursement notice. This DN is then
sent to the National operations team (NOC) in Delhi. NOC has two functions : open account and
set disbursement limit. Hence any queries related to the account opening form are raise to the
business team at this stage.

3.4 Post disbursement Customer engagement

At post disbursement stage two processes take place – customer engagement visit and end use
monitoring.

Mandatory Post-Disbursement Visit

End use monitoring is done by business as per existing policy of the Bank within 45 days from
the last calendar day of the month of disbursement on 100% basis and the same has to be shared
with the reporting authority and credit for noting.
Installment, Interest due reminder visit and call is also done as defined in customer engagement
matrix depending upon repayment history with YBL.
Customer Review/Monitoring Visit
Half yearly visit to customer for monitoring/review/document collection is made by the business.
Also trigger based visit is done where installments has bounced within last 3 months before
installment due date.
For all non-starters and all cases having continuous 3 bounces – credit along with Business joint
visit is done.
RL/RPs will also monitor OD accounts and submit the conduct report which includes cash flow
routing and churning in the account and along with the customer engagement visit report. Apart
from this the RCG visit is done on sample basis post disbursement.

3.5 Collection for overdue accounts

Collection is done by the business team, however in case of absconding, death of customer etc, it
is handed over to the collection team.
3.6 Limit Reduction/Limit enhancement
OD accounts are reviewed on or before 12 months from the date of previous sanction to facilitate
continuity/ enhancement/reduction/withdrawal of the limit.

All deviant accounts are tagged and escalated in the system. Accounts wherein the interest has
been serviced are recommended for limit continuity/enhancement. The limit extension is granted
by the approver as per Bank’s approval delegation.

3.7 Process flow comparison of Yes Business Banking

For internal comparison and benchmarking, YBL’s small and medium enterprise or Business
Banking was also taken into consideration. The process flow as below :

Process flow for credit underwriting

Business
The RM initiates the proposal. Business prepares the Cam sheet and case login happens in colors
LOS. All the dedupes , credit ratings are checked by the RM before sending the file forward. The
proposal may be sent to other Product Team like Trade, CMS, FARM) for review.

Risk Underwriting team

From there the Risk Underwriting team (or credit analyst) evaluates the proposal. Queries if any
is raised and sent back to the RMs for resolution. RUT reviews the CAM and also checks the
ratings. CAM is sent to the signatories authorities for approvals. Modifications are made as per
the requirements. Proposal is sanctioned and approved CAM is sent to CAD MO team for further
processing.

Process flow for CAD Mid office

As the CAD receives the CAM receipt from Risk, the date and time of CAM receipt is captured
by SPOC in the inward register and is scanned and saved in the drive of the respective clients.
The CAM is sent to the CAD MO for due diligence. CAD initiates the legal and valuation and
TSR of property collaterals.
The RM prepares the draft FL and share with CAD MO.
CAD cross checks the draft FL. Final FL is prepared and a unique reference number for FL is
generated. The same is sent to the RM for acceptance form client along with list of documents to
be executed.
RM submits the accepted FL letter and executed documents to CAD MO.
As per disbursement checklist, CAD cross check the executed documents and disbursement
notice is raised to the BO for limit setup.
All exceptions related to facility are tracked in CCube software. All executed documents are kept
in separate docket in YBL cabinet under dual custody/stored at external storage.
The point of differences observed are :
  All the dedupes are done by the RMs prior to case login
 Credit team is only responsible for credit deciosning
 Preparation of FL is the responsibility of the RMs as per terms decided by the Credit
 CAD is the process owner of the Legal and Valuation
 Account opening and limit is set up at branch level.

3.7 MEF loan process flow comparison of other private sector banks

Ujjivan IDFC ICICI Yes Bank

Sourcing Loan Officer RMs conducts SMs conducts RL/RPs conducts
conducts PD/business PD/business PD/business
PD/business assesment/documents assesment/documents assesment/documents
assesment/documents as per checklist as per checklist as per checklist
as per checklist
Loan application in Loan applcation form Loan applcation form Loan applcation form
Artooo tablets, verify is filled/case file is filled/case file is filled/case file
KYC with help of login in Indus R login in Colors login in FinnOne
IRIS and fingerprint software software
scanning
Credit decisioning The case passes to The case passes to The case passes to The case passes to
credit team located at credit team located at credit team located at credit team located at
hub locations/checks every hub locations/checks hub locations/checks
files/dedupe/PD branches/checks files/dedupe/PD files/dedupe/PD
files/dedupe/CV/
Soft sanction
Legal and Back office checks Credit co-ordinate SM sends document Credit co-ordinate
Valuation the for L & V to internal mortagage for L & V
files/verification/send department for L&V
file for legal and
valuation
Sanctioning Final sanctioning by Final sanctioning by Final sanctioning by Final sanctioning by
Credit Credit Credit Credit post CAM
approval
Disbursement & Disbursement Operations checks Operations team Operations checks
Post disbursement happens at branches files and initiates handle disbursement files and initiates
LUC checks at disbursment. located at Hub disbursment
regular intervals Acoount opening location
Top up loans happens in branches.
Total login to 15 working days 15 working days 7 working days 20-30 working days
disbursement TAT
 4. Data analysis and Findings

4.1 TAT analysis

The TAT analysis shows the average time taken by each of the process step.

Figure 1: Average Sourcing to Sanctioning TAT

The average sourcing to sanctioning takes up 19 working days. Here, the raising the queries,
query resolution and Credit visit is taking up most of the time; and could be worked upon.
Figure 2 : Average TAT from sanction to disbursement

In post sanctioning to disbursement, the average TAT taken is that of 7 working days. In this
credit often do not pass the case to OSD in finnone even though the physical file reaches them.
Also raising queries is taking up time. These two again can be worked upon.
In total the average TAT from sourcing to disbursement is 26 days. Focus must be on reducing
queries in pre-sanction and post-sanction stage and also reducing the time taken by credit to
conduct credit visit.

4.2 Query Analysis

For the purpose of identifying the unique and recurring queries raised from Credit, OSD and
NOC team- about 596 queries were compiled for analysis. Of this, 393 queries from pre-sanction
stage raised from Credit to business and 205 were from post sanction stage raised from OSD and
NOC. The nature queries are attached in annexure.
On plotting the same in bar graph we have following findings:
Figure 3 : Pre-sanction query frequency

It is observed that KYC, Loan application form, assessment documents, property documents
OSV/CSIP/self attestation documents and others have the higher frequencies in the queries.
Other documents include business vintage, shop rent agreement, dual name certificate etc.

Figure 4: Post-sanction query frequency

At the post sanction stage, the queries which are significant and having the higher frequencies
are legal, valuation, Facility letter, SPDC and others. Other incomplete documents consist of
Dudupe not signed by CM, Dual name not in YBL format, CERSAI check not attached, KFS not
attached. The nature of post sanction queries are listed in annexure.

Key findings from Query Analysis:

 Loan application and KYC discrepancy make up 20% of the total queries. Of this queries
like incomplete and incorrect details filled, KYC name mismatch, CAM missing cases
makup most of the queries.
 In property documents which make up 20% of pre-sanction queries mainly pertain to
rent agreement missing, society NOC, property card 7/12 among others.
 OSV/CSIP stamp was found missing in most of the cases. This along with customer self-
attestation on photocopies of loan documents make up close to 10% of the queries.
 Discrepancy in FL is found to be high and is of two natures – non-compliance of FL
conditions and vital details of the loan incorrectly filled by the CM.
 Legal and valuation is also found to be high in number – TSR being mostly unclear and
in valuation the case of missing valuation cheque is most frequent.

4.3 Findings from Personal Interview with MEF teams

Sourcing
At sourcing, as explained in the diagram , the problem with RL/RPs was identified on two levels
– lack of training and process adherence.
RL/RPs working under YES MEF are recruited mainly from local areas. Hence they were found
to be not as polished as those working under BB. For majority this was their first job. They were
found to be lacking in knowledge on business analysis, financial assessment, identifying the
criteria and eligibility fit. This led to almost 80% of the cases studied under queries reported as
FTNR. Also as found in the point number 13 in checklist (annexure ), documents are often not
available as per checklist due to unique geographical and business features. RL/RPS are suppose
to arrange alternate supporting documents in order to present the case to the credit team in
special cases. However due to lack of business knowledge, RL/RPs often were found to be
clueless as to what documents were to be arranged and often had to login the case with improper
or incomplete documentation.
Also before login, RL/RPs had to make multiple visits to the applicant in order to complete the
documentation process. KYC of business promoters and co-applicants were collected in the first
visit however assessment documents and property documents were found to take up most of the
time. On an average the RL/RP took 7 days in order to complete the documentation process.
Another reason for process
Figure 5 : Bottlenecks at business stage

Login to sanctioning
RL/RPs has to fill up the same sourcing information in three different forms viz Loan
Application form, CAM sheet and FinnOne Business bucket.
This repeated data entry has resulted into business leaving the data incomplete in Loan
application form and CAM sheet. Hence the incomplete Loan application and CAM sheet alone
make up 20% of queries.

According to the TAT analysis done earlier, the physical file movement and the credit visit takes
up time. This is primarily because there are only 1-2 MEF credit managers in each state. Rest is
KCC resource persons. Hence MEF loans are not priority. This contributes to the delay in credit
decisioning. Also the hub model makes it difficult for CMs to conduct visit on the day the file is
login. This escalates the delay by 5 days. Also this also results in delay in raising queries to the
business team.

Yes Green Scan can make the credit decisioning faster, however it’s yet to be implemented and
hence its success depends upon technology infrastructure supportat each of the branches.

Also the legal and valuation process is not streamlined in branches located in Punjab, Haryana,
Uttarakhand and Maharashtra. Hence the TAT is higher in these states due to delay in legal and
valuation. Queries making up legal and valuation are 10% of total queries.

Post sanctioning to disbursement

As observed in the TAT analysis, the Credit often do not put the case in OSD bucket, which
causes delays in the disbursement process. Also queries raised to credit pertaining to facility
letter, SPDC cheques could take up time to resolve. The legal and valuation is yet another query
for which credit is maker and OSD is checker. Legal and valuation has made up significant
queries as seen previously. This further delays the process. Apart from this, there is again no
dedicated OSD resource for MEF and is shared by KCC. OSD team has declared that KCC cases
are done on priority as directed to them by the management.

Hence as seen in the diagram below, bottlenecks identified for each of the teams has scope to be
worked on.

Figure 6 : Bottlenecks identified in entire loan process

Credit and OSD personal

The credit and OSD personnel are not dedicated for MEF and is shared by KCC. This causes
MEF cases to put on lesser priority. Following two tables shows state wise breakup of the
Business and credit personnel.

Table 7 : Business personnel count

RBL SH CBL RL/RP

Rajasthan 0 1 4 24

Gujarat 0 1 3 11

Punjab 0 1 2 12

Haryana 0 1 2 10

Uttarakhand 0 1 2 11

Maharashtra 1 1 1 18

Karnataka 0 0 0 5

NCR 1 0 0 2

MP 0 1 3 12

Total 2 7 17 105

Table 8 : Credit personnel count

CMs CPAs Total

Rajasthan 6 7 13

Gujarat 3 3 6

Punjab 3 3 6

Haryana 3 3 6

Uttarakhand 1 1 2

Maharashtra 2 2 4

Karnataka 0 1 1

NCR 1 1 2

MP 2 2 4

Total 21 23 44

As seen from the tables, the business to credit ratio* is 2.5. And the credit managers are not
dedicated for MEF. This is one of the reasons that cause delay in MEF that could be looked upon
as the MEF business operations expand.
 5. Conclusion
The entire process improvement area can be divided into four parts – business operations, credit
operations, OSD and policy.

Business team needs to be trained in terms of understanding clients businesses and MEF product
and its processes. RL/RPs is unaware of what the implications would be in terms credit
decioning if process is not complied. The FTNR cases are lesser for experienced RL/RPs as
compared to inexperienced ones. Hence a mix of veterans and freshers must be considered at
each branch – to make operations run smooth. A comprehensive training is a must for all
business team members in all the branches. Training must also cover financial analysis of
business coming under micro loans. There must also be random tests administered at regular
intervals to ensure the business team is well updated with changing policies of the bank.

Also the repeated data entry workload as mentioned in previous chapter is contributing to
process non-compliance. Technology can play a tremendous role here. Just like in Ujjivan – the
Artoo aids the loan officers not just in filling up the form digitally but also credit history, KYC
authentication happens by punching their 12 digit Adhar number. This is a cost increasing
adaptation – however in long term could significantly reduce the TAT.

When credit team is shared with KCC – how fast the MEF loans gets sanctioned or rejected
depends significantly on the relationship RL/RPs or CBL share with the CM. Once the
confidence and trust is established that particular cluster has maximum FTR cases, the CMs
passes the files faster – at times even promoting the case to fast track. During personal
interviews, it was found that RL/RPs often are unable to portray their cases in a positive light
while making the case files. This alone has led the CMs to reject the cases upright stating
insufficient documentations. This relationship dynamics could play a huge role in reducing TAT
caused by this.

Also from credit side, the CM visit which takes up to 5 days to finish and thereon the approval
process makes up 30% of the overall TAT. There is a need for decentralization in credit
decisoning. (annexure) CMs should be given power to make decisions in case of policy
deviations- which is now escalated to management team and results in cases stretching for more
than a month. Also scope for credit decisoning happening at the branches itself can be explored,
using technology solutions.

Also as the MEF operations will expand, dedicated credit and OSD staff has to be recruited on
regular basis to support the business. This alone could potentially reduce the TAT by 10 days.

As seen in the pre-sanction queries – documentation like Dual name certifications, self
attestation, signature proof – is found to be present in almost all the cases that was studied. This
attracts our attention to the policy changes that are needed.
OSD queries raised to credit regarding legal and valuation, post sanction documentation and
sanctioning documents. This is observed because credit doesn’t have a credit checklist. An
accountability mechanism could be administered for credit team. However this is possible once
MEF have their own credit team.

6. Recommendations
The recommendations work in two areas viz reduces queries and make file movement as agile as
possible. The recommendations are divided into four areas – business, credit, operations and
policy changes.

6.1 Business
 Training by seasoned RL/RPs
RL/RPs need hands on training when it comes to understanding the eligibility and criteria
check. Apart from this seasoned/experienced RL/RPs can pass on the tricks of trade
which they have accumulated over the years that enable to pass on their files faster.
Following are some of the practices adopted by the experienced RL/RPs:
 First Time Visit: When the business visit is done, RL/RPs collect all the
available documents which could be collected on the field itself, even if the
documents aren’t updated. Examples include Bank statements, loan repayment
record, net worth certificate, business visit photographs.
 Deviations from the checklist: If the documents are not as per checklist but
RL/RPs found the case as strong, they must get in touch with the
Credit/Legal/RCU/Product/Policy team in order to check if any alternate
documents could be arranged to make the case stronger. Same goes with property
documents. Since property documents are unique to particular area and could
potentially cause the case to become negative – RL/RPs must consult the credit
and valuation team at pre-login stage.
 Case follow up: RL/RPs have tremendous pressure to generate new logins and
have no control over post-login apart from document execution. Hence they often
are relaxed once the case gets sanctioned. They must pursue and keep close track
of all their cases and must pursue credit mangers to take up their cases faster.
Personal relationship dynamics plays an important role here.

 Data Entry workload

RL/RPs has to enter same data three times viz Loan application form, CAM and Finnone.
Business, already burdened with meeting sales targets, find this cumbersome and often miss
out filling up information either in form, CAM or Finnone. This is reflected in 20% queries
pertaining to pre-login and login stage. This data entry burden could be reduced by:
  Tablets for RL/RPs: FinnONe and Loan Application form could be integrated with
loading FinnOne. Digital signature, iris and fingerprint scanner could be adopted for
KYC verification.
 CAM sheet could be exported to FinnOne so that CAM data could be directly
transferred to FinnOne.

6.2 Credit

 Presence of Credit Executives at each clusters

There needs to be decentralization at credit decision stage. For this the CPAs who sit with
credit managers at hub locations could be transferred to the branches. These executives
must report only to CMs. This could significantly reduce the credit decisoning time and
get maximum FTR cases due to following reason:
 Speed up pre-login, post sanction, disbursement document execution
 CIBIL check could be done pre-login
 Check policy compliance pre-login stage

Beat Model

There is no discipline or pathway by which the login files are sent to the credit
managers for credit desioning. A system could be established wherein RL/RPs from
clusters will have a specific day on which they will send the cases to the credit
managers for sanctioning. So the business team will have to accumulate the logins
and send their files only on the decided day to the credit manager. This will enable
CMs to send the queries to the business team in a disciplined manner and also cases
done by CMs could be tracked.

The disadvantage of this system is that the business and credit team must adhere to
this system. Also during month ends, where the business team has maximum pressure
to reach their sales targets, this system could not be implemented.

6.3 OSD
Make OSD process owner of the Legal and Valuation

The OSD team is responsible to check the legal and valuation of the cases and raise
the queries to Credit. Credit hence is a mediator to get the Legal and valuation done.
This is an added burden to Credit. The queries pertaining to legal and valuation could
eliminate or reduced leading to faster disbursement.

The disadvantage of this would be that CMs having faster legal valuation systems
would suffer and also this could delay the final facility letter preparation.
6.4 Policy
Legal self attestation document

Self attestation in each document by applicant is missed which finds its way in
queries raised by CMs. Instead of having a signature on each document, a legal
document wherein all the documents that are to be submitted at pre-sanction and post-
sanction stage could be listed and signature of the applicant could be taken in the end.

This practice is implemented in InusInd Bank and reduces the need to sign each and
every document photocopy.

Systems validity of CIBIL, Legal and Valuation and Sanction letter

Following is the current systems validity

Table 9 : CIBIL, Sanction, Legal and Valuation

Validity Current Proposed

CIBIL 30 90

Sanction 90 90
Letter

Legal & 30 90
Valuation

Unique cases which are prolonged due to delay in sanctioning stage or Legal and valuation stage
often resulted in expiration of CIBIL, sation letter and legal and valuation of property documents
which resulted in cost for company as well as the customer. Case also would need to be relogin,
which did not give correct TAT for the concerned case. Extending the CIBIL and Legal &
Valuation by 30 days as done in BB would give enough room for special cases, also would
enable to capture correct TAT.

Modifications in the checklist

The following modifications could be done in Business checklist in order to make collection of
documents easier and reduce queries :

 Customized Drop Down checklist for each constituents/Variant of loan

 Photograph of Business and Property mandatory before login only for MEF Fast Track
 Valuation Cheque to be made mandatory in Pre-login checklist
 Checklist for Credit team to reduce queries post sanctioning stage
Technology Solutions

Since Yes MEF has started its operations two years ago, it’s still growing in terms of business
volumes. However, it needs to adapt to technology faster and must keep in par with other private
sector banks and small finance banks.

Digital field application

One such solution would be Artoo’s digital field application. The digital field application
integrates right from sourcing to repayment. The credit decisoning also takes place in the system.
This significantly reduces paperwork, error and reduces bad loans. MIS reports are generated in
the system itself, making it efficient in delivering real time data to strategic layer of the business.

Real time SMS updates

Mobile technology can be integrated in the system, wherein the applicant can track the loan
application status in real time. Also as and when the queries are raised, the applicant would be
notified to keep ready the required documents and thus reducing the query resolution time.

7. Annexure

7.1 Annexure – Priority sector lending targets

7.2 Annexure – Financial snapshots of Yes Bank
7.3 Annexure – Funding as per ‘Assessment Eligibility Matrix’

Sr. NO Methods Documentary Max funding amount

availability

1. 2Y ITR/financials + 1
Y RTR
ITR+ Financial statement based 25 Lacs
method
2 Y ITR/financial
(NTC)
15 Lacs

2. 2 Y BS/VAT/GST+ 1
RTR
Banking surrogate method/VAT/GST 25 Lacs

2 Y BS/VAT/GST
(NTC)*
15 Lacs

3. Basis purchase bills Purchase bills 15 lacs

4. 2 Y RTR + 1 Y 15 lacs
ITR/VAT/GST/BS
RTR based
1Y RTR+1Y 15 Lacs
ITR/VAT/GST/BS

 Note for NTC funding of INR 15-25 Lacs, funing amount to be accepted at 15%
of sale turnover.

7.4 Annexure –Fixed obligation to income ratio (FOIR)

FOIR = Total annual obligation/Net surplus income

FOIR Range :

 65% to 90% of Net surplus for VAT & Bank statement basis merit of the proposal

 70 to 95% of Net Surplus for ITR/Financial statement

Note : Net business income of applicant should be higher than the annual loan obligation.
7.5 Annexure – Acceptable collateral – LTV
Type of security Max LTV % on Fair Market Value (FMV)

Residential Property - SORP 70

Residential property - rented 65

Residential property- vacated 55

APMC property 65

Commercial property – SOCP 60

Commercial property –rented 50

Commercial property – vacated 40

Residential plot 40

Commercial plot 30

Village panchayat approved residential 50

property –self occupied

Village panchayat approved residential 40

property –rented

Village panchayat approved commercial 40

property-self occupied

Industrial property 40

Fixed deposits LIC policies, KVPs, NSCs 100%

Note :-

1. For FDs having non-cummulative interest payment , LTV – 85%

2. 10% deviation on LTV maybe approved jointly by CCO & BH for SORP/SOCP and
APMC property.

7.6 Annexure – Business Checklist

Sr.
Documents
No.
1 Loan Application Form*
2 KYC Documents as per YBL Policy*
A Aadhar of All Promoters and Co-applicants*
 B PAN of All Promoters and Co-applicants*
3 Assessment Documents*
A ITR/ Financials - Min 2 Years
B Repayment Track Record - Min 1 Year
C Bank Statement - Min 2 Years
D VAT Statement - Min 2 Years
E Purchase Bills though invoice with registration/ VAT number (Min 6 months)
Other business Income/Expense Docs (Investment Docs/ Receipts/ Other income
F
validating doc) e.g. Rent agreement, electricity bills etc.
4 Credit Approval Memo (RP/RL sheet along with signed copy)
5 Photographs of Business Premises with Business representative in Background.
Photographs of Property Collateral with Business representative in Background
6
(Other than Liquid Asset)
7 Security Related Documents - As per REVG guidelines
A Property Documents (Photocopy)
B Liquid Securuties (FDR/Insurance - Surrender Value and Receipt)
8 Valuation Fee Cheque
9 Declaration/Certificate
A Gross Investment in P&M/ Equipment's
B Networth Certificate (CA/ Self)
Performa Invoice (With TIN/VAT number) / Quotation / Project cost Report for
10
any asset purchase
11 Stock Statement (Wherever Applicable)
12 Takeover docs (List of property doc, Facility letter, SOA, O/s balance, RTR etc)*
13 Special case documents
A
B

7.7 Annexure 2 – OSD Non-discrepancy

7.8 Escalation matrix
Sr. NO Criteria Approving Authority

1. Promotor age (21-25 years) L2

2. Business vintage/stability 2-3 years subject to SORP/SOCP/APMC L2

property @50% LTV

3. Gap in ITR filing <6 months (ITR filing within 6 month prior to login) L4

4. Gap in ITR filing <6 months (ITR filing> 6 month prior to login) L2

5. CIBIL score below benchmark (upto 650) Secured : L2,

Unsecured L3

6. RTR deviation –one breach in peak DPD upto 60 days L2

7. RTR deviation others (including inward cheque bounce) L4

8. Inward cheque bounce (up to 5 or 5% whichever is higher) L2

9. Dip in business turnover up to 20% L2

10 Dip in turnover/PAT of more than 20% die to external factors like GST L3
or demonitization

Reference

1. RBI (2015, July 1). Master circular – Priority sector lending- Targets and classifications. Retrieved
from https://rbi.org.in/scripts/bs_viewmascirculardetails.aspx?id=9857
2. Yes bank Limited. (2018). 2017 annual report. Retrieved from https://www.yesbank.in/annual-
reports/fy-2017-18/annual-report-2017-18&Category=AnnualReports&FYear=2017-18

3. (2018) YES Micro Enterprise Finance Operating guideline (April 2018). Mumbai.