The move from collaterals to cash flow-based lending will give enough traction to the growth of micro enterprises to become small and small to become medium, says SBI chairman CS Setty.
State Bank of India is planning to shift from collaterals to cash flow-based lending for all loans to micro, small and medium enterprises (MSMEs) of up to Rs 5 crore, chairman C S Setty said.
This move will give enough traction to the growth of micro enterprises to become small and small to become medium enterprises, Setty said at the Financing 3.0 Summit organised by the Confederation of Indian Industry (CII).
MSMEs had low access to credit because of lack of formalisation. But this has dramatically changed post digitalisation and formalisation. “Formalisation and digitalisation have helped us to devise models to reach out to MSMEs,” said Setty.
MSMEs need access to key resources such as credit, governance, technology, and market linkage to thrive. “We at SBI believe that up to Rs 5 crore, we completely want to move from collateralised-based lending to cash flow-based lending, backed by guarantee,” Setty said.
Highlighting the need to develop skill sets to handle credit to new sectors, the SBI chairman said lenders will have to continuously innovate in terms of delivering credit, especially corporate credit in complex and emerging areas such as battery storage and hydrogen.
“We run the largest project finance book in the country today. Despite our years of experience, the skill set required to assess emerging areas is still lacking,” Setty said.
SBI is collaborating with multilateral development banks (MDBs) and some large MNC banks to resolve this, he said.
Creation of such specialised verticals with universal banks is the need of the hour. This is not just for large corporate credit but also for lending to MSMEs,” Setty added.
“While we expect much of the capital to come from overseas to support the domestic capital formation, universal banks, particularly large ones, are expected to play an important role in infrastructure financing,” Setty said.
On the corporate bond market, Setty said there is a need to deepen it in order to improve credit access. Domestic institutional investors such as mutual funds, pension funds and insurers will need to play a much bigger role to help channel more capital into the market.
Setty said credit growth should be driven by all the financial sector players and not banks alone.
