MSME’s response to our 59-minute loan story

Having reviewed the point-wise reply sent by MSME Development Centre, we as a matter of professional journalism have drafted our reply in response to objections raised by the concerned office. Against our show 59-min scam aired on 12^th November 2018. Some of the points communicated by said office were not found to be relevant to our video in our opinion and hence we have not made a point by point reply to all specific matters. We have produced the concerns flagged by said above-mentioned office ad verbum and thereafter followed it up by our reply to the same.

1. This company owned by Jinan Shah, Vikas ManilaI Shah. We do not know about them. MSME’s reply:

• The majority stake (54%) in the company is owned by a consortium of public sector banks and their associates. The said stake can be increased to 76% on achievement of certain milestones.
• The nominees of these banks constitute majority seats on the Board of the company and thus have control on its operations also.
• All banks started doing business with the company after acquiring majority stake in the company.

2. The company is run by a few individuals i.e. Jinanl Shah, Vikas Shah, Akhil Handa and 1 or 2 more directors. MSME’s reply:

• Akhil Handa has no ownership in the company and is only a nominee director representing one of the Institutional shareholders in the company, viz. Bank of Baroda. There are 3 more Institutional Nominee directors on the Board of the company.

Mr Handa has no relationship with the founders of the company and no role, past or present, in day to day operations of the company.

The Institutional ownership and governance structure of the company is already discussed at 1 above.

3. Unknown Private Company handling huge loan scheme of Govt of India Data can be misused MSME’s reply:

• The Institutional ownership and Board structure of the company has already been discussed at i above.
• The platform is not running any loan “scheme” of Govt of India. It facilitates pre-screening of customers for various products of the respective banks and it enables in-principle approval by banks.
• The company follows a strict data privacy policy approved by the Board of the company. Further the IT teams of partner banks satisfied themselves with respect to data privacy aspects on the platform.

4. Parting of sensitive data (Login id & password) with a Private company.

MSME’s reply:

• The platform does not ask for any passwords.
• The Institutional ownership and governance structure of the company, already discussed above; ensure s highest level of data privacy.

5. Why did SIDBI did not do directly through www.UdyamiMitra.in?

Udyamimitra is a loan aggregator portal (for deal generation) with limited IT features. It does not have the advanced algorithms and end to end digital technology platform. The objective of this collaborative exercise was to use the latest and fast evolving innovations in Fintech ecosystem and create an exclusive platform in partnerships with various PSBs.

6. A tender was issued on 22nd January for choosing the company. The criterion included a reliable track record of handling very sensitive data by way of analytics and algorithms with quick turnaround time, etc. Management consulting income should have been Rs 50 crore annually. MSME’s reply:

The tender issued on January 22nd, 2018 was for appointing a management consultant (MC) and the said criterion was for the MC and not a Fintech. The process for identifying a Fintech for strategic investment was a different exercise.

7. How did the company (CWPL) become eligible? MSME’s reply:

After examining various options, the consortium decided to identify a suitable Fintech with desired capabilities & a ready digital platform for acquiring a strategic (majority) stake. Multiple Fintechs were considered through an Institutional process carried out by SID8I along with SIDBI Venture Capital Ltd, the specialised equity AMC of SIDBI. The Fintech capabilities were also validated by the partner banks and their respective Technology teams. The identified Fintech was found to have a platform and capabilities suited to the requirements of the consortium.

8. Why did SIDBI not do this…Why did they not work with likes of Infosys or TCS which are doing government work?

As you might be aware, Fintechs have been leading innovation in financial services. Globally, the latest trend is for large banks to collaborate with Fintechs in multiple ways to benefit from their innovation and nimbleness.

In the current case also, the consortium engaged with several Fintechs and judged them on the basis of the capabilities, features of their product & platform and their ability to keep ahead of the technology curve.

The fact that the project could result in convergence of major PSU banks and development of a strong platform driven by advanced algorithms and technology is a clear demonstration and validation of the decision of the consortium to collaborate with a Fintech.

9. Its company with no business… March 30, 2015 FY 16 income zero, FY 17 income 15k MSME’s reply:

– The Company was incorporated on March 30th 2015. Thereafter, significant capital and efforts were invested in the Company to develop a unique platform which had an end to end digital and transparent credit solutions for Banks and Customers. It had no experience and software. The First Version of the Platform was developed by March 2017 and after testing with banks and NBFCs, the refined and advanced version was released / announced to public on February 2018. This was covered by media agencies. Capabilities of the Company were recognized at forums including IDRBT (Banking Technology Arm of RBI).

10. Crony capitalism: Lucrative assignment for the company because of Rs 1180 fee MSME’s reply:

– There are NO charges on registration on the Platform

– No charges are collected from customers who do not become eligible for in principle approval, even though the platform incurs costs for them.

– A nominal convenience fee ( Rs 1000 + GST) is charged by the PSB loans platform only to customers who becomes eligible and gets in-principle approval and selects to proceed with the approval.

– It may be noted that the platform is not making any profits from the convenience fee.

11. In principle sanction has no sanctity and does not guarantee final disbursement MSME’s reply

In principle approval is provided on PSB loans platform after pre screening the customer through a detailed algorithm where it is made sure that it qualifies with loan products parameters of respective banks and thus it increases chances of getting a final sanction in a much shorter time.

This helps bankers also to complete their diligence process and disbursement process in a much more expeditious manner.

12. Generally, No application fees for in-principle. Who does the application fees go to? MSME’s reply:

No application fees are charged to the customer. A nominal convenience fee is charged by the PSB loans platform only to customers who becomes eligible and gets in-principle approval.

Further, no such fees are collected from customers who do not become eligible for in principle approval, even though the platform incurs nearly the same costs for them.

13. Now they are telling us SIDBI isis thewner of 56% of the company Share capital of CWPL was Rs 1 lakh. Further, it had losses in FY 16 and FY 17 Company was not entitled for premium of Rs 119 per share. MSME’s reply:

The majority stake (54%) in the company is owned by a consortium of public sector banks and their associates. The said stake can be increased to 76% on achievement of certain milestones. All banks started doing business with the company after acquiring stake in the company.

2. Share capital of CWPL:

As on March 31, 2018, the company had raised and utilised more than Rs 8 crore (of which more than Rs 5.50 Cr. through equity/equity premium & balance as Unsecured Loans) to develop a digital platform. Thus, the promoters had invested a significant amount of own capital in the company

3. Valuation:

The valuation was ascertained by the specialised equity AMC of SIDBI. It got an external valuation done through a reputed valuation agency. The agency provided valuation recommendations on the basis of different methodologies viz. Earning potential (DCF) and peer benchmarking with similar transactions in Fintechs with same business profile, capabilities and stage. The external valuation was followed with further negotiations with the company to arrive at a final reduced valuation. This methodology is considered appropriate and is in line with industry practice for valuation of an early stage Fintech start-up.

14. Main objects of the company Software not mentioned. MSME’s reply:

The following extract also forms part of the company’s object clause

” to carry on the business to setup plat form to provide online solutions to corporates, retailers, individuals etc. to raise capital from various sources such as private equity funds , venture capital funds, banks, financial institutions, non-banking financial institutions, high net worth investors, etc.”

15. Election goodies NPAs will build up for Banks. MSME’s reply:

The platform helps banks get access to pre screened and better vintage customers who have good Credit scores, GST track record, profitability track record and satisfactory credit parameters as per bank’s requirements & internal credit parameters. Thus, it will help PSBs to build a quality MSME portfolio.

It intends to encourage progressive MSMEs registered with GST and showing inclination for digital engagement with formal Banking channels.

Views of HW News

2018. The views that we have expressed in our program have been based on information that has been available in public domain viz. the tender dt. 22^nd January 2018 issued by SIDBI, pursuant to which a contract was awarded to CapitaWorld Platform Pvt. Ltd. (the said company) and the audited financial statements of the said company, as available on the MCA website, as accessible to the public. We have also relied on the procedures/application in respect of the ‘in principle’ sanction letter received for a loan of Rs. 1,40,438 by Libra Media Group, vide his application dt. 12^th November 2018.
2019. We have perused submissions (pt. 1 to 15) forwarded to us by the MSME Development Centre, vide email dt. 22^nd November 2018, and respond as under :-
2020. It is not explained as to how the said company was eligible for the award of the said contract, pursuant to the conditions of aforesaid SIDBI tender, dt. 22^nd January 2018.
2021. No explanation is given for the reason why SIDBI paid a premium of Rs. 119.30 per share for a loss making company, with no track record of performance/profitability whatsoever. A mere report of an ‘expert’ is not enough, when the facts are clearly against such valuation and do not even pass the test of common sense. Even Grant Thornton had valued the ‘King Fisher’ brand at over Rs. 3000 crores, against which SBI granted a loan to KFA, which is now reported to be under CBI investigation.
2022. At a time when even the capability of the Aadhar Authority (a government body) to maintain integrity of data has been a matter of challenge before the Supreme Court, no explanation is given about the capability/track record of the said company (a private entity), to maintain confidentiality/integrity of data received, from the individual borrowers.
2023. There has been a deliberate failure to inform the exact date when the contract was awarded to the said company, together with the related evidence, which is necessary to prove that the entire exercise of the SIDBI/PSBs taking up the shareholding in the said company was an afterthought/cover up of the tender condition violation.
2024. MSME is a government ministry. To us, its eagerness to stand advocate for a private entity, as it was when the contract was awarded, only supports our contentions.

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