"Banks must embrace AI, ML, NLP to lend to SMEs that don’t have credit history, are untapped by form

Financing for small and medium enterprises (SMEs) has always been challenging for banks with problems ranging from inadequate data to poor financial astuteness of promoters. Yet, SME lending is a lucrative business avenue, especially in the wake of shrinking volumes and margins from large corporates. This has been recognized by some new-age NBFCs and fintech that have moved into this commoditized lending space, trying to differentiate themselves and pose competition to banks. For banks, true differentiation lies in the deployment of new-age analytics and tools in the entire credit lifecycle-prospecting, appraising, onboarding, and servicing of customers. Banks have historically relied on analyzing financial statement data and taking collateral while lending to SMEs. This has often led to sanctioning of lower credit limits and an inadequate assessment of the risk.

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