The banks are asking for additional papers for the sanction of loans or seeking additional papers like property of similar amount.


New Delhi: The sanction letter obtained through the (public sector bank loans) portal—dedicated to enable Micro, Small and Medium Enterprises (MSME) entrepreneurs to access loans of up to Rs 1 crore—does not seem to be enough to secure loans from banks, as the number of cases of banks refusing loans under this provision has significantly increased.

On 2 November this year, Prime Minister Narendra Modi had made a slew of announcements aimed at reviving the country’s MSMEs. One of these was about a dedicated digital platform—psbloansin59minutes—to enable people to access loans of up to Rs 1 crore in just 59 minutes.

Santosh Kumar, a Mundka resident who has crockery making business in the area, said: “Despite paying the mandatory fee and obtaining the sanction letter from the psbloansin59minutes portal, the bank refused to lend money as I couldn’t provide the property papers to mortgage and secure the loan. The bank officials asked me to show some property papers and said that without them, they cannot sanction the loan amount solely based on the sanction letter I have obtained from the portal.”

Ravi Bhatia, 45, who runs a furniture store in Delhi’s Tilak Nagar area, has a story similar to Santosh Kumar.

Bhatia, after getting a loan sanction letter for Rs 45 lakh from the psbloansin59minutes portal, approached the bank, but the bank refused to give him any loan because Bhatia could not fulfill the mortgage and other such requirements set by the bank.

“I paid Rs 1,000 and got a sanction letter for the loan from the portal. When I contacted the State Bank of India (SBI) branch in my area to avail the loan, the bank official told me that I have to submit additional papers like property of similar amount; unless I submit the papers required by the bank, they will not lend any money,” Bhatia told The Sunday Guardian.

To verify such complaints, when this reporter contacted the SBI branch where Bhatia had applied for the loan, the official, on the condition of anonymity, said “We cannot provide loans based on only the letter obtained from the psbloansin59minutes portal. We need to secure the bank’s interests, too, and for that, we are bound to put such a clause. We cannot approach the portal to get our money back in case of a default and, therefore, the customer needs to understand that the sanction letter has a limited role only.”

As per provisions of the loans-in-59-minutes initiative, once a firm uploads key information such as tax returns and ownership details and makes a nominal payment of Rs 1,000 with taxes, the portal generates a sanction letter that entitles the individual to get the final loan from banks.

However, in practice, banks are turning down loan applications based solely on the sanction letter generated by the portal.

The psbloansin59minutes portal got a cheerful initial response and the day after Prime Minister Narendra Modi made his announcement, a statistics counter on the website claimed 1.69 lakh registrations and loan approvals to the tune of Rs 23,582 crore.

The initiative to provide fast sanction of loans to individuals involved in the MSME sector has been taken to increase the credit rate in the MSME sector as the credit rate has been declining for a long time. Data from the Reserve Bank of India (RBI) shows that banks’ lending to micro and small-scale industrial units fell from 3.1% of gross domestic product (GDP) in 2013-14 to 2.22% in 2017-18.

Over the same period, banks’ lending to medium-scale industrial units also fell from 1.1% of GDP to 0.62%. Sanjay Gupta, a Delhi-based chartered accountant who has been working with the MSME sector, told The Sunday Guardian: “One reason why public sector banks are reluctant to lend to MSMEs is that a substantial proportion of these loans go bad.”

According to the MSME Pulse report, for public sector banks, the level of non-performing assets (NPAs) among MSMEs went up from 13% in June 2016 to 15.2% in June 2018.  The psbloansin59minutes portal is a strategic initiative of the SIBDI-led public sector banks’ consortium incubated under the aegis of the Department of Financial Services (DFS), Ministry of Finance.

The portal sets a new benchmark in loan processing and reduces the turnaround time from 20-25 days to 59 minutes. Subsequent to this in-principle approval, the loan will be disbursed in 7-8 working days.

Replies to “Banks refusing loans to MSMEs despite letter”

  1. This is an absolute waste of time and brings bad repute to the Honble Prime Ministers noble intentions. These banks have no sense of applying their mind to the issues faced by MSME and this despite the fact that each bank have their own MSME branches that decide these loans on behalf of these banks and just think that is another cost for the bank . The real pain is the enormous time that entrepreneurs end up spending in dealing the continuous requirement of documentation and after 4 months they say they arent sanctioning for the most trivial reasons and they insist on collaterals. This is total nonsense and makes a mockery of the Entrepreneurs time.

  2. I have applied for a term loan from Union Bank of India through psbloansin59minutes . They have sent the sanction letter but have asked for a collateral without which they would not sanction the loan . So what is is the benefit for applying a loan through . They is serious communication gap between the banks. they are not willing to lend a single to anybody

  3. True. Being an owner of MSME firm and going from Bank to Bank ,I have come to the conclusion that “Banks are for Corporates ” They don’t entertain MSME & Agriculture sector at all. To complete target regulations( like mandatory portion of of lending to Priority Sector Lending ,CGTSME ,MUDRA Loan) they just manipulate fundings. Banks have refused to entertain any Schemed loan. All they say is (1) Bring property (2) Take Unsecured loan – subject to eligibility (3) Repeat the above steps in respective orders. They never let the deserving, needing MSME/Agri. Unit to have benefits. Banks do not want to engage themselves in anything except what comes with collateral.
    My suggestion and experience is to save time and energy going to Banks and moving to fintechs , NBFCs,MLIs. Government and Banks have no hope.
    This is why China is rising . 98% of all companies in China are MSME . Their policies to MSME / Agri. are unimaginable from Indian perspective. Like Chinese mobile companies (Oppo, Vivo,Xiaomi) have overtaken Indian mobile business, be ready Very soon China will take all Indian MSME business. After all it’s global competition. Only then, with growing shutting down of businesses and increasing rages, Indian Govt. may take compulsory intervention in Bank’s mandatory funding to MSMEs.

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