 "SBI, State Bank Of India")
The non-performing assets (NPAs) in the SME book declined from 4.77 per cent in June 2023 to 3.75 per cent, according to analysts’ presentation. (Photo: Shutterstock)
State Bank of India – the country’s largest lender – is aiming for a complete shift in 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 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 among lenders. Before those mindset changes happen, a little bit of support from credit guarantees is required,” Setty said, addressing the “Financing 3.0 Summit” organised by the Confederation of Indian Industry (CII) here.
The formalisation of MSMEs due to GST has increased confidence in lending to them. 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 the comfort borrowers have with the current arrangement of collateral-linked funding. The transition to fully cash-flow based lending will happen in stages.
With over two million customers, the bank’s SME portfolio surpassed the 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 the SBI annual report for FY24.
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 non-performing assets (NPAs) in the SME book declined from 4.77 per cent in June 2023 to 3.75 per cent, according to analysts’ presentation.
Emphasising 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 corporate bond 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 highlighted the need to develop skillsets within 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 the new emerging areas like battery storage, hydrogen, etc., they also require capital going forward,” he added.
First Published: Sep 02 2024 | 7:54 PM IST
