Posts By :

Pallav Das

The Importance of KYC Process for Banking Industry

Know Your Customer (KYC) is the first crucial step in credit analysis for any commercial lending firm. The primary objective of this process is to prevent money laundering, and to manage risk and financial frauds.

As per RBI regulations on KYC, the objective of KYC/Anti Money Laundering (AML)/Combating of Financial Terrorism (CFT) guidelines is to prevent banks or Financial Institutions (FIs) from being used, intentionally or unintentionally, by criminal elements for money laundering or terrorist financing activities. KYC procedures also enable banks and FIs to know and understand their customers and their financial dealings better, and so manage their risks prudently.

KYC is an integral part of the banking process. Regardless of whether it is for retail banking or corporate banking, KYC norms are non-negotiable.

In simple terms, KYC involves four essential steps:

  • The identity of the customer: Individual, Partnership, Sole Proprietorship Firm, Company, or LLP
    The business’ address: Registered address where business activities are being carried out, such as offices, factories, depots, or warehouses
  • Statutory registration: Whether the business is compliant with various statutory registrations pertaining to RoC, Income Tax, GST, etc
  • Legality of the business: Whether the business is legal as per Indian laws

To verify the above details, RBI has issued a list of documents which can be submitted to banks and FIs for further due diligence and acceptance.

The KYC process is lengthy and time-consuming since it involves a lot of documentation, compliance checks, and verifications. Often, this can take 2-3 weeks to complete and also entails an enormous cost to banks and FIs.

Although it is a legal mandate for banks and FIs, KYC also creates a miserable experience for customers. Over the year banks and FIs have adopted technology to automate KYC processes. Ideally, minimal customer interaction and contact is needed during KYC, as most data are available on public domain. Asking the customer to submit the same data will only delay the process.

How can Probe42 significantly improve the KYC process?

  • Improve cycle time: Access company incorporation documents such as MoA, AoA, DIR-12, segment-wise industry analysis, and director details along with their other directorships
  • Improve customer experience: Seamless KYC process is essential to boosting the customer experience and long-term relationships with the bank
  • Save Cost: Time is money. So, digitization will not only reduce the cycle time significantly but also replace unwanted paperwork for both customers and banks.

Probe42 is a one-stop solution for all company information in India. With Probe42, you can access the information of over 1 million companies — anytime, anywhere.

So, log in now and explore your company of interest.

5 key ratios for commercial loan underwriting

Over time, financial ratios have been used to quickly evaluate the financial and operational health of a company. Ratios are precise, yet elaborate enough in their own way.

Most of these ratios can be calculated through financial statements and then compared with industry benchmarks to get a broader understanding. For bankers, the interpretation of the ratio is far more critical than the computation. Validation of solvency and performance are the two essential characteristics of such financial ratios.

Selection of critical ratios is essential for bankers to access asset management, capital management, liquidity, risk, and profitability.

To make it easier we have listed five key financial ratios required for commercial loan underwriting:

Profit Margin Ratio: This is a widely used profitability ratio, and it indicates the amount of profit generated over sales. This ratio measures the company’s ability to earn enough profit to sustain its business. Profit margins often vary from industry to industry, so, a prudent banker should always compare it with close competition and with the average industry standard.

Debt Ratio: This is a solvency ratio, which indicates the debt level of the borrower as a percentage of total assets. A lower debt ratio suggests more stable business and the higher is reverse. A ratio of 0.5 or less is considered as healthy, as this means the company has two times the assets as compared to liabilities. Anything more than 0.5 should be carefully examined before consideration.

Loan to Value (LTV) Ratio: This is a risk assessment coverage ratio that is very critical for mortgage underwriting. The LTV ratio ensures that the collateral is worth higher than the size of the loan. Higher the LTV ratio, more the risk involved.

Debt Service Coverage Ratio (DSCR): This is a liquidity ratio, which indicates the amount of cash generated by the business to service its debts (principal, interest, and leases). DSCR validates the borrower’s capacity to pay back the debt and keep running the business. DSCR between 1.25-1.5 is a relatively safe number to consider. However, it differs from business to business and depends on the risk aversion policies of the bank.

Net Worth to Loan Size Ratio: This ratio is used to compare the borrower’s net worth to the size of the requested loan. A high net worth indicates stable financial health, ultimately ensuring the repayment of the loan.

Ratio analysis is a proven technique to carry out quantitative analysis. However, financial ratios often vary across different industries and sectors, and comparisons between entirely different companies might not be advised.

So, it is advisable to examine industry peers through PEER COMPARISON to get more meaningful insights about the industry.

How can Probe42 help ?

Use Probe42 to:

  • Access key ratios by downloading financial statements in an excel format
  • Compare with peers in the same industry
Use Firmographics to Segment your Audience Effectively

Are you ready for the new era of sales?

Today customers are more informed than ever on the highly competitive banking sector. In this highly competitive state, what is most important is how different you are from any other salesperson. Therefore, knowing your prospect better than anyone else is the key differentiator.

Market segmentation and targeting is a widely accepted approach in today’s business world. Be it business to customer or business to business, correct segmentation is imperative to serve the market efficiently.

Firmographics are some identifying characteristics of a business that help to group it, along with other companies that have similar attributes, into a significant market segment, with .

Just like we use demographics to define people, firmographics does the same for companies.

Firmographics are very useful in outlining market segments. With a more in-depth understanding of market segments, sales and marketing teams can now plan their strategies more effectively.

Variables of Firmographics

  • Industry
  • Size
  • Business Location
  • Structure
  • Performance

Purpose of Firmographics

  • To know more about the firm, with regard to their business activities, market situation, and government regulations
  • To segment the market better — creating more logical business categories and enabling the development of products that align with the business’ requirements
  • To optimize marketing efforts and improve conversion rates
  • To maximize sales and minimize rejections caused by statutory irregularities and non-compliances
  • To gauge opportunities for growth and foresee hidden threats by understanding industry data trends and comparing it with different markets

Benefits of Firmographics

  • Hasten the sales cycle
  • Identify new opportunities
  • Understand what you need to offer
  • Improve productivity by better targeting
  • Boost marketing ROI

How Probe42 Helps

With Probe42, you can easily define your target markets with ease by:

  • Accessing firmographics of over 1 million active companies
  • Using powerful search filters to locate companies in your catchment area

Login now to explore your company of interest.