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Union Bank of India: Digital bank-ability to harbinger a revolution

The digitization of small-loan processing and disbursement is a path- breaking step. The second-largest public sector lender to the MSMEs has set its focus on building three pillars, such as attractiveness, responsiveness and outreach.

The lock-down in no way hindered the bank from making itself accessible to MSMEs as both the conventional and online channels were actively open for customers.

Within seven months of government’s announcement for amalgamation of two smaller public sector bank, Andhra Bank and Corporation Bank with Union Bank of India, everything fell in place for smooth transition. The final leg of amalgamation coincided with the worst crisis that India had ever seen, through the pandemic induced first phase of the strict lock-down. However, that did not impact the process of its amalgamation, a challenge the top management has successfully met. The combined workforce of all the three banks, of over 75,000 people, came together to complete the time-bound task without leaving any reason for lags on their way. The completion of the amalgamation did not end all the tasks. Too much was there in the pipeline.

Indeed, there were some logistic issues during the lock-down period. Crisis on one side open opportunities on another side - when e-commerce business thrived , some companies were wiped out. many manufacturers could transform their business facilities and resources into units for making the mask and personal protection products. That way, many enterprises did good business. But there were sectors like travel and tourism, which were heavily impacted.

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Indeed, there were some logistic issues during the lock-down period. Crisis on one side open opportunities on another side - when e-commerce business thrived , some companies were wiped out. many manufacturers could transform their business facilities and resources into units for making the mask and personal protection products. That way, many enterprises did good business. But there were sectors like travel and tourism, which were heavily impacted.

Though the lock-down had added to its challenge of stabilization, it could jostle into taking new responsibilities as a committed Public Sector Bank (PSB). The bank, keeping aside all obstacles and pressure on completing the process of integration, worked hard to contribute its share to support economic growth through ceaseless support to MSMES. as the government wanted it to do and as the nation desired.

The lock-down in no way hindered the bank from making itself accessible to MSMEs as both the conventional and online channels were actively open for customers as usual.

Post amalgamation, the footprint of Union Bank of India has widened further with a stronger presence in the southern region. Among the PSBs, Union Bank of India is the second-largest lender to the MSME segment (as of Sept 2020). The banks aggregate MSME asset size of over 2125 trillion rupees to over I.4 million borrowers is still growing faster while the fifth largest public sector bank in terms of an overall business mix, its MSME assets, making it the second-largest, means Union Bank of India now has a proportionately larger share of MSMEs in its over- all credit combination than other banks’. The days ahead would see more rapid growth in MSME portfolio, thanks to its carefully planned growth strategy, adoption of the revolutionary digital loan model, redefining of MSMEs and the rapidly changing MSME ecosystem. But building a quality business has always remained a challenging task as many factors are beyond the control of lenders and borrowers.

The bank already has a good track record in addressing its customer grievances, which would improve further as we continue to work on various new measures.

On 13th May last year. among various relief measures announced by the Union Finance Minister, half a dozen measures were for MSMEs, as a part of the Atmanirbhar Bharat package. When most MSMEs were grappling with two kinds of problems such as liquidity concern and solvency issues, the government came out with a scheme to address both the issues. Ten per cent of the Rupees 20 trillion special packages announced by the government in May last year were meant to boost liquidity to MSMEs. Banks acted proactively and stood prepared to offer up to 20 per cent of MSME borrowers’ outstanding (ECLGS 1.0), as an additional credit. Accordingly, MSMEs with outstanding up to Rupees 25 crore (later revised to Rupees 50 crore) and Rupees 100 crore topline (later modified to Rupees 250 crore) were eligible for a government guaranteed fresh line of four- year credit with 12 months moratorium on principal repayment. Financing under ECLGS 2.0 have also been proactively adopted. Union Bank was at the forefront of implementing all the schemes especially the emergency line of credit. Since the initial days itself, we could gain traction and be one of the leading banks to implement government schemes. The reason for gaining early traction and quick response to the government call was because, before the government announcement itself, the bank had started extending its own emergency line of credit to MSMEs, making relaxed norms for margin requirements and offering flexible working capital to MSMEs to help them come out of financial crisis.

That showed the bank’s close reading of the situation of the MSME market. As a responsible national lender, Union Bank Of India believes that helping MSMEs is beneficial for the bank itself. Hand-holding an MSME through timely financial assistance also provides an opportunity to the bank to strengthen its books, says A K Vinod, Chief General Manager, heading MSME and small Corporate vertical of the bank.

Now the bank has 93 SARAL centres dedicated to the processing of MSME loan applications. The centres process proposals within a time frame. The bank is now working on cutting the turnaround time further.

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As a Head of the MSME vertical he has set a vision to make Union Bank the first choice of MSME customers. This not only means by the size of books or market share, but by being number one in terms of mindshare and heartshare, he says. To achieve this goal. the bank, according to A K Vinod, works on three pillars such as attractiveness, responsiveness and outreach. Union Bank already has a good name amongst MSME customers.

It wants to build further on its good name through various new’ initiatives and programs, he adds. Eventually, the bank should ensure that any prospective entrepreneur planning to set up a venture should first think about Union Bank of India for banking needs. The bank is steadily moving towards achieving this goal & occupying a larger share in the MSME space. Similarly, the bank has always been serious about responsiveness to the customers’ calls, be it processing of proposals or grievances. “The bank already has a good track record in according its customers’ grievances, which would improve further as we continue to work on various new measures“, says Vinod.

The digitalisation of small-ticket loan processing helps it achieve all the three in one go. it has already piloted the Shishu Mudra Loan that is applied for, processed and disbursed through the digital platform. Over a period, other loans up to Rupees 5 crores can be bought on the digital platform, drastically cutting the turnaround time, man-power volume and disengaging branches with the processing burden.

The bank has a proactive approach in terms of outreach in fact, it is the bank’s strategy to reach out to the MSMEs rather than they reaching out to the bank. Each of the amalgamated entities had its won strengths and base of loyal customers, who have grown with the bank. Union Bank on its own has strong centralized credit processing cell, thanks to the NavNirman intiative.

The top management is very passionate and supportive about strengthening its credit processing mechanism and digitization to ensure faster turnaround time and smoother processing. These efforts will enhance the goal of improving the outreach plan of the bank. Presently, the bank has 93 SARAL centres (credit under- writing hubs) dedicated to the processing of MSME loan applications. The centres process proposals within a defined time frame. “We are now working on cutting the turn- around time further“, says the top management of the bank. Digitilisation of loan processing is a buzzword now. ” Making the bank work under a technology enabling ecosystem. which is very important in these days of lesser human intervention in processing and transactions, predominantly led by digitalisation“, he avers. Naturally, the bank is keen to harness its technology skills and opportunities available to it. “We plan to digitise transactions as far as possible. We have taken a lead in this direction by digitalising small ticket loan processing“, says Vinod. This a step of de-congesting the processing task in the case of small loans apart from ensuring better customer convenience.

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Post amalgamation, Union Bank has a network of 9590 branches and 120 million customers with a significant pan India presence. More than half of the network was added after the amalgamation.

We see many green-shoots which give us new confidence to move ahead/ Armed with digitalisation we are optimistic that we would be able to grow more rapidly. Despite the redefining of MSME and some of them moving out of the classification, our MSME business growth rate has been impressive.

The credit-at-click is a sagacious and seamless loan processing approach since the small ticket loans are not practically viable for branches to process. Initially. in this model, the bank has launched the Shishu Mudra Loan facility, which has an upper cap of Rupees 50,000. As the bank goes ahead, all the bigger size Mudra loan products also will be processed and disbursed through the digital platform. Now, a Shishu Mudra Loan applicant can use the digital platform for the loan, which will be processed and disbursed digitally. As of now. no other lender has rolled out such digital loan model. “Our six-month-long work on this model has proven to be successful“, he says. The platform is actively open now. The bank has begun to pilot it in Varanasi and Bangalore and is planning to take it to other parts of Uttar Pradesh and Karnataka. This revolutionary model will go live in all the States soon. Over a period, Union Bank can open the digital platform for a loan even up to Rupees 5 crore.

Through this, the bank is expected to acquire more mindshare. The digitalisation will help it cut the operational cost significantly and cut down on risks over a period of time.

As a result, employees and branches will be less burdened with the traffic of loan applications. “Many administrative works will be shifted onto the digital self-enabling platforms. Acquire more and serve more are our plans”, he says.

MSME sector offers huge opportunities for lenders. But none can overlook the fact that this segment has been under stress since the pre-lockdown days. In the pre-Covid-19 era, the scenario was different Post Covid-19 there are different set of problems, maybe more severe than what MSMEs faced during the pre- lockdown days. The bank is well in sync with every government action plan. “We have been on the forefront of implementing all government schemes“, he points out. PM Street Vendor’s Atma Nirbhar Nidhi (SVANidhi) is one of the examples. More than a solution to the Covid-19 led crisis it is emerging to be trans-formative project. The process of bringing five million street vendors into the formal lending system has been a mammoth task. In this case also, Union Bank is next only to State Bank, India’s largest lender. The loan journey taken place on the digital platform, street vendors need to begin to transact digitally for availing cash backs.

Post amalgamation, Union Bank has a network of 9590 branches and 120 million customers with a significant pan India presence. More than half of the network was added after the amalgamation. The amalgamation also has brought in many synergies to the bank, making MSME customers of all the three banks the better beneficiaries of the combined entity.

Already, MSME is one of the biggest verticals within Union Bank. “To make the vertical stronger through ensuring a broader market reach we have created 225 MSME-focussed branches. That doesn’t mean none of the other branches of our bank would act on mSMEs needs“, says Vinod. In fact, every branch can guide MSMEs to take home the benfit of Union Bank’s MSME solutions. The branches do it, he points out.

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