State Bank Of India Shifts Focus To Cash-Flow-Based Lending For Msmes

(MENAFN- KNN India) New Delhi, Sep
3 (KNN) The State bank of India (SBI), the country's largest lender, is set to make a significant shift in its lending strategy by moving from collateral-based lending to cash-flow-based lending for all loans to micro, small, and medium enterprises (MSMEs) up to Rs 5 crore.

This initiative was announced by the newly appointed chairman, C.S. Setty, at the Financing 3.0 Summit organized by the Confederation of Indian industry (CII).

"Up to Rs 5 crore, we want to move from collateral-based lending to cash-flow-based lending, backed by guarantee, which will give enough traction to the growth of micro enterprises to become small and small to become medium," Setty stated.

This transition aims to improve credit access for MSMEs, which has been traditionally hindered by the lack of collateral and the absence of proper assessment skills within lending institutions.

Setty emphasized the importance of developing new skill sets to assess creditworthiness in emerging sectors like battery storage and hydrogen. "Every type of financing requires different skills set," he said, highlighting the need for continuous innovation in corporate credit delivery.

He noted that even though SBI operates the largest project finance book in India, the skills required to evaluate emerging sectors are still developing.

To address this gap, SBI is collaborating with multilateral development banks (MDBs) and large multinational banks to create specialized verticals within universal banks.

This collaboration aims to foster growth in both large corporate credit and MSME lending. "Reducing credit friction will help reduce the challenges faced by MSMEs but not eliminate them," Setty remarked, underlining the need for a gradual transition supported by guarantees.

Additionally, Chief Economic Advisor V. Anantha Nageswaran suggested that corporates, both public sector units (PSUs) and private entities, should adopt invoice discounting on a larger scale to improve working capital cycles, thereby enhancing credit access for MSMEs.

Sanjiv Bajaj, Chairman and Managing Director of Bajaj Finserv, echoed this sentiment, calling for the expansion of the digital financial infrastructure and the entry of new banks and non-banking financial companies (NBFCs) to support credit growth.

Setty also underscored the need to deepen India's corporate bond market to further enhance credit access. He pointed out that domestic institutional investors like mutual funds, pension funds, and insurers must play a more significant role.

"There is only so much commercial banks can do on corporate bonds," he explained, stressing the importance of non-bank participants in creating products that channel capital back into the financial system.

In conclusion, Setty highlighted that credit growth in India would increasingly depend on a broad spectrum of financial sector players, not just banks. The shift to cash-flow-based lending marks a strategic pivot for SBI, aligning with its broader goal of fostering a more inclusive and dynamic financial ecosystem for MSMEs.

(KNN Bureau)

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