 "SBI proposes common mechanism to track SME fund usage for better pricing")
Country’s largest lender, State Bank of India, has mooted a common mechanism to track the use of funds—raised through debt and equity—by small and medium enterprises (SMEs) to give comfort to lenders and investors and make pricing more competitive.
“We will require a viable mechanism to track the actual use of these funds to ensure that the funds are utilised for the purposes they have been raised for,” said SBI chairman C S Setty while addressing (virtually) a symposium on securities markets organised by the Securities and Exchange Board of India.
He said stakeholders can probably establish a separate market infrastructure institution with powers to track the use of borrowed funds or the funds raised through equities, he added.
Bankers said small units are mostly managed by individuals or families. The distinction in operation of accounts for business and household purposes is often weak. This raises questions about the diversion of funds and makes assessments about repayment capability in times of stress.
Referring to credit decisions about SMEs, the SBI chairman said a big challenge in providing credit to micro, small, and medium enterprises (MSMEs) has been the lack of credit information and the information asymmetry created.
“There are a lot of data points which are available now, whether the Goods and Services Tax (GST) or the bureau data, which is making lending to MSMEs to that extent much easier now. These data points will help in structuring equity offerings,” he said.
In recent years, fintech and banks have started to dig for credit information from publicly available data and use analytics to create a credit profile. There is a need to formalise and collate all these disparate sources of information and create a repository to enable investors to make informed decisions, Setty emphasised.
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MSMEs already contribute almost one-third of India's nominal gross domestic product (GDP) and account for 40 per cent of exports. Most importantly, they are also a major employment generator in the economy, Setty said.
He also flagged emerging issues of climate finance and green transition. The annual green financing requirement could be about 2.5 per cent of GDP to address the infrastructure gap created by climate events. This could increase if a faster carbon emission reduction goal has to be pursued than what is committed under the Nationally Determined Contributions (NDCs) under the United Nations Framework Convention on Climate Change.
The Council on Energy, Environment, and Water has estimated that a cumulative investment of $10.1 trillion is needed in India to meet net-zero commitments by 2070. Of this, $8.4 trillion is required for power sector transformation.