Banking On Allies

Be it online merchants on platforms like Flipkart and Amazon, Oyo-affiliated hotel owners or cab owners of taxi aggregators, the state-owned Bank of Baroda has taken a huge lead over others in reaching out to them, thanks to its partnerships with fintech firms. The bank's 'Fintech Alliance' comprises 35-plus partnerships in various segments, including SMEs, large companies, retail lending, wealth management, payments, and more.

"All our partnerships can be put into three main categories - lending, wealth and technology and payments. About 60 per cent of our business is lending, out of which 70-80 per cent is SME lending," says Akhil Handa, Head, Fintech and New Businesses Initiatives, Bank of Baroda.

One of the bank's biggest successes has been the 'PSB loans in 59 minutes' initiative - an in-principle loan approval for SMEs within 59 minutes based on information submitted. "Everywhere, this is marketed up to Rs 1 crore, whereas in our case, it is Rs 2 crore. We are able to give a loan to even presumptive tax applicants. Almost 30 per cent of our business comes from presumptive tax numbers."

Bank of Baroda was one of the first few banks to jointly develop an SME underwriting programme using alternative sources of data to ascertain the creditworthiness of online merchants. "We built modules to underwrite new-to-credit customers, to underwrite new-to-city customers and we did this based on our partnership with internet scale platforms because they are able to give us data. Reams of data - sales, payments, returns, lookalikes, ratings, customer ratings, platform ratings - which never figure in the loan profile of traditional underwriting, were used," says Handa. In the process, it extended loans of more than Rs 27 crore; 45 per cent beneficiaries were new to credit.

Uncharted Territories

The bank's partnership with Oyo is a perfect example of how it is moving ahead of the pack. The bank understood that Oyo is a fast growing company that plans to expand aggressively. At present, it has around 100,000 keys under management. If a three-star hotel wants to tie up with Oyo, it has to meet certain standards. This may mean upgrading the property, which requires capital. Bank of Baroda tied up with Oyo to glean data to assess loan seekers' creditworthiness. "Oyo is fundamentally able to give us, one, his (borrower's) audit report ... so we get a good estimate of his credit requirement and where it will be used. Two, it can be easily compared to similar properties in the area. So, we can categorise into grades and using that grade we are able to make a projection of the business. There is a lot of seasonality; we are able to get all this data from the partner, and take a credit decision based on that," explains Handa. Bank of Baroda was the first bank to partner with Oyo.

The bank has partnered with Deal4loans for retail lending, SwitchMe for housing loans, and with GyanDhan, EduLoans and WeMakeScholars for education loans. More than Rs 35 crore in home loans and more than Rs 25 crore in education loans have been given through fintech partners.

In payments, the bank has partnered with ToneTag, for contactless payments through sound, and with Truecaller, which allows the app's users to perform financial transactions instantly. "Our partnership with Truecaller has started to fructify. Over the past four months, we have seen more than 3.5 million customers coming in; 30,000-40,000 come in daily," says Handa. The bank has also garnered more than Rs 70 crore as assets under management through its wealth management platform from around 18,000 subscribers within a few months.

Another feather in the bank's cap is the TReDS (Trade Receivables Discounting System), which is used to facilitate discounting of MSME sellers' invoices against large companies, government departments and PSUs. The platform has done business of more than Rs 400 crore.

Apart from tie-ups with various fintech firms, Bank of Baroda has also set up an innovation centre in collaboration with IIT Bombay to create digital solutions. "The initiatives that we are currently taking can be categorised into scalable, to be scaled and experimental. Our focus in on moving the 'to be scaled' to 'scalable'," says Handa.

Banks that follow traditional practices are often at a loss when underwriting for new-age sectors. For instance, until recently, banks did not have the ability to underwrite the credit exposure of e-commerce companies. The bank has bridged this gap. "Today, our revenue from all these initiatives is Rs 1,935 crore. We expect this to reach Rs 2,200 crore by March 2019. We started this business in January last year. At this run rate, we will be in the range of Rs 4,000-5,000 crore over a three-year period," says Handa.

Digital engagement beyond Tier-I locations is also increasing and rural areas are expected to follow suit soon. Handa says core systems and technology infrastructure are being deployed. "Over the next five years, it will be binary in nature - either you are seen as a digital bank or you are not." But more immediately, Handa's worry would be have a tech strategy to account for the three-way merger with Dena Bank and Vijaya Bank, which is underway.

The author is a Mumbai-based freelance writer.