SBI aims for cashflow-based lending to SMEs, says chairman C S Setty

Its SME portfolio rose by 19.87 per cent year-on-year (Y-o-Y) to Rs 4.43 trillion at the end of June 2024

The State Bank of India (SBI), the country’s largest lender, is aiming for a complete shift with regard to loans to the SME sector of up to Rs 5 crore, from collateral-based assessment to cash flow-based loans backed by credit guarantees to improve access to funds, according to its chairman C S Setty.

This will also help entice borrowers to stay with the lender, said Setty, who took charge as SBI chairman last week.

“If you want to transition from collateral-based lending to cash flow-based credit, which is possible now, there is a need for policy and mindset changes amongst lenders. Before that mindset changes happen, a little bit of support from credit guarantees is required,” Setty said, addressing “Financing 3.0 Summit” organised by Confederation of Indian Industry (CII) here.

The formalisation of MSMEs (Micro, Small & Medium Enterprises) due to GST has increased confidence in lending to them. The credit is important for scaling up business but what is also required is governance and technology for SMEs to grow, he added.

Later speaking on the sidelines, he said the bank will have to address the issue of fees charged to SME customers for guarantees and comfort the borrowers have with the current arrangement of collateral-linked funding. The transition to fully cash flow-based lending will happen in stages.

With above two million customers, the bank’s SME portfolio surpassed Rs 4 trillion milestone as of March 31, 2024, constituting nearly 13.41 per cent of its overall advances at the end of FY24, according to SBI annual report for the financial year.

Its SME portfolio rose by 19.87 per cent year-on-year (Y-o-Y) to Rs 4.43 trillion at end of June 2024. The non-performing assets (NPAs) in SME book declined from 4.77 per cent in June 2023 to 3.75 per cent, according to analysts' presentation.

Emphasizing on the need to develop the corporate bond market, the SBI chairman said it was essential for non-bank financial institutions, such as insurance companies, mutual funds, and pension funds, to participate in the said market to help channel more capital into the market. Credit growth should be driven by a diverse range of financial sector players, and not just banks, he said.

He highlighted the need to develop skillsets within the universal banks to handle credit to new sectors. “We need to continuously innovate in terms of delivering the products. When it comes to the complex models of corporate financing, especially in new emerging areas like battery storage, hydrogen, etc., they also require capital going forward,” he added.