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Be A Fool In 59 Minutes : In-Principle Loans

Be A Fool In 59 Minutes : In-Principle Loans

Fifty-nine minutes. It is neither 60 minutes nor 61 but one minute less than an hour. This is what it takes for a loan application to be processed and approved, if claims about the Central government’s new loan scheme are to be believed.

Yes, this is what Prime Minister Narendra Modi promised, barely a few days before Diwali to those who were earning their bread and butter from small and medium enterprises. Sure, the sector has long been neglected and it needs a new lease of life. However, anything as quick as 59 minutes at a time when banks have been struggling with bad loans certainly appears to be doubtful or boastful.

Anyone who is a hard-core critic of the Modi government would term it as another jhumla without as much as batting his eyelid. For, how can a business loan ranging from Rs. 1 lakh to Rs  1 crore be sanctioned  without looking at the project or the complex Credit Monitoring Analysis (CMA) and leverage ratio, without conducting due diligence and without paying attention to the financial stability of the firm.

Well, the government, as it is claimed, has developed an online platform for the convenience of business entrepreneurs. For a tech-savvy person, the domain name itself may raise eyebrows because it resembles that of a quick-fix solution just like freedom251. 

The entire country was crazy ordering the phone for as small an amount as Rs. 251, expecting that one day, they would use this phone, without hurting their pocket. Ultimately, no one got the phone. People forgot the money and Mohit Goel, the man behind this idea. Of course, he was caught. Freedom251 sounded like a ponzy scheme and the government should have intervened right at the beginning.

The 59-minute loan scheme sounds similar but for the endorsement from our very own prime minister. So what is this scheme all about? And how can one apply for this quick-shot loan? Let’s find out.

For a credit-hungry sector, a scheme promising easy credit is certainly most welcome. However, the procedure raises certain questions. For one thing, the portal, claims to be run by a SIDBI-led consortium of banks, do not have a simple page -- “About Us” or “Who we are” — that any new customer would first like to see and explore.

True, the “contact us” page has an email id, a toll-free number and a mobile number. It does not have any official communication address. 

This writer knows how important it is to have a registered office address as the registrar of companies would not register an entity without it. Some may claim that since the entire process is online, does it actually matter to have a physical or an official communication address? One may recall that when a few thousand shell companies were found, some of them had fake addresses or had the address of the chartered accountant who incorporated the firms.

The portal does have a page titled – About the initiative. For the convenience of the readers, the content of the page is reproduced here:

“PSB Loans in 59 minutes is an online marketplace, which will enable In-Principle approval for MSME loans up to INR 1 Crore in 59 minutes from Public Sector Banks.

“This platform has reduced the loan processing turnaround time from 20-25 days to 59 minutes. Post receiving of In Principle approval letter, the loan is expected to be disbursed in 7-8 working days.

“The loans are processed without human intervention till sanction and/or disbursement stage. On this platform, MSME borrower is not required to submit any physical document for In-Principle approval. The solution uses advanced algorithms to analyze data points from various sources such as IT returns, GST data, Bank Statements etc.”

Going by the above description, one may think, how a private entity or a portal can give an in-principle loan approval involving banks. Yes, technology may have given a solution for finding out the repaying capacity of an entity based on the complex algorithm that the portal speaks about. But will the banks have no say on it?

The answer lies in the frequently asked questions (FAQs) tab. The text is reproduced hereunder again for the convenience of the reader.

“The In-Principle approval is given based on the data provided by the borrower. After offering In-Principle Approval, the preferred lender (as selected by the borrower) will conduct a thorough due diligence and decide on whether to Sanction/Disburse the Proposal. The final decision will be at the lender's discretion.”

Now the question is, if the lender or the bank has the final power to decide whether an entity will be given a loan or not, then why should a person upload its sensitive information like income tax returns, bank statements etc. on a portal that does not disclose basic information on it? Is it transparency all about? And then what is this 59 minutes loan approval or scheme? Would it actually serve any purpose?

Not only this, initially, the portal asked the party (who wanted to apply for loan) to upload certain documents like GST return, tax returns etc. along with the password for income tax account and also GST login details also. However, when the issue was raked up in the media, the system requirements have been modified to include only a few set of documents.

Needless to say, it was a huge risk that a businessman would have taken by sharing sensitive information like login details, without knowing the consequences just on the faith that the prime minister spoke high about it. So what purpose does this portal actually solve?

One may not find answers to these questions, at least on the website, unless you find a small logo at the bottom of the page showing the name CapitaWorld. The logo does not have a landing page. It actually makes you think what this name is about.  A simple search will take you to the website of this Ahmedabad company, which says it connects the borrowers to the lenders online. And the big banner that says it is a SIDBI-led consortium of banks and boasts of its partnership with several nationalised banks. Needless to mention, the company was the sole and the biggest beneficiary of this entire game of 59 minutes for generating an in-principle approval letter.

While registration on the portal is free of cost, a party has to pay a registration fee of Rs. 1000 plus GST. Once the in-principle approval letter is generated, the vendor has to approach the bank on his own. And in case the entity gets a loan, then CapitaWorld will get 0.35 per cent of the loan amount as fee. What a masterstroke Modiji!

Simply put a loss making company, which had no revenue or business a year ago, shall have a huge source of income in the form of processing fee! While for some less educated, the in-principle approval letter may sound fancy, but later on, they will realise the loss as they may have to go through the same ordeal of getting papers passed through the bank. 

In other words, for the MSME sector, nothing has changed but for the fate of one company, which did not meet the bare minimum requirements of the tender floated by SIDBI early this year.

An online news portal has laid bare certain disturbing facts about the company, which had revenue of only Rs. 15680 as on March 31, 2017, contrary to the terms and conditions mentioned in the tender requiring at least Rs. 50 crores revenue from management consulting during the preceding three years.

The only credit that the company had was an award that it won at a contest organised by the Reserve Bank Of India’s research institution, the Institute for Development and Research into Banking Technology, for its banking app. Interestingly, it won the second prize, not the first. If the award was the deciding factor then the government should have approached the first prize winner.

Whatever may be the case, it is a fact that the company that was initially set up by a chartered accountant, a manufacturer and a venture capitalist, got an huge investment from SIDBI and renowned nationalised banks, that too within a short period of a few months.

Not only this, the investment has been done at a huge price. Against the book value of only Rs. 2.20 per share, SIDBI bought 1743,371 shares in CapitaWorld platform at Rs.119.39 per share. The price for that share was calculated at Rs. 129.39 per share by a firm named as OMMS & Associates as mentioned in the article. 

Incidentally, the certificate defies all logic as the share value has not been calculated on the firms past earning or assets but based on the “potential earning capacity” of the company.

In fact, before investing in this company, SIDBI had its own platform for linking borrowers with the lenders. Even if the government found the platform developed by CapitaWorld more effective, it should have thought of buying the software, instead of investing in a private closely-held company.

All said and done, it may take 59 minutes for an in-principle approval, but loan sanction may take more than a month. For the ailing MSME sector, there seems to be no respite. What Modiji has achieved in making this 59 minute scheme viral, only he or the owners of CapitaWorld can answer. As for now, it is all hidden and opaque until SIDBI throws some light on the selection criteria.

(The writer is a company secretary and can be reached at )

(Published on 10th December 2018, Volume XXX, Issue 50)