The co-lending model is assisting banks assess and mitigate dangers linked with lending to modest and medium enterprises (SMEs), State Bank of India (SBI) chairman Dinesh Kumar Khara stated on Tuesday. SMEs have to have funding at present as they will lead the recovery post-Covid, he added, speaking at an occasion organised by the Confederation of Indian Industry (CII). Khara also observed that income from the domestic marketplace and household savings was not enough to fund India’s infrastructure development and the only way forward was to open up the capital markets additional to foreign capital.
“The financing of SMEs in today’s context is more of a clarion call. If at all employment has to be generated in this economy, the mainstay of the post-Covid recovery is going to be SME. For that, as the largest lender, we are certainly concerned about how to ensure that the process of recovery begins and it’s on the right track,” Khara stated. One way of performing this is the co-lending model, which assists banks get insights into client behaviour with the assistance of analytics.
At the similar time, weaker firms ought to bring in more equity in order to access bank funding. “Of course, those who are lower down the curve will have to strengthen themselves financially, more equity has to be brought in,” Khara stated, adding, “Going forward, all markets, whether it is NBFCs (non-banking financial companies), banking or microfinance, are very cognisant of the risk and how to manage it.”
Khara stated for India to kick-begin sizeable infrastructure investments, the capital markets ought to be opened up to enable and encourage the inflow of more foreign capital. Many methods have been taken in the current previous to shore up the interest levels of foreign capital in the Indian economy. “May be the data and financial reporting, which is one of the critical components for shoring up the confidence of international investors, has improved significantly. But, I think this is only the beginning,” the chairman stated. He added that India ought to do more to accelerate the pace of improvements in places like reporting and corporate governance. Money with insurance coverage and pension funds ought to also flow into infrastructure financing, he stated.
Even if a improvement finance institution (DFI) is set up, there will be no area for it to access funds from the government or its agencies. It, also, would have to rely on international flows. “All this while, the domestic market and household savings were the major source of savings for the economy. With that kind of savings, the growth trajectory we have chalked out for ourselves may not be easy to accomplish,” Khara stated.
The debt capital markets have a restricted contribution to development as the pool of participants there is pretty modest. As a outcome, the yield curve that India has is not a representative 1, stated Khara. “Until and unless we have broad participation coming in both in terms of issuance and buyers, a more sustainable yield curve becomes a challenge,” he stated. There was some activity quickly just after the Covid-19 outbreak, amid efforts by the government and the RBI to provide liquidity to all types of instruments. The quantity of issuers rose marginally as a outcome of these measures. Many corporates, who had under no circumstances issued debt papers, did so when they saw that there was liquidity readily available for such papers.
“Probably with the commitment which people get from the market, we’ll get to see better traction. We as a financial institution would be very happy to see a yield curve developing and also broad-based participation because we see that the opportunity is huge,” Khara stated.
He emphasised that SBI is in no position to freeze funding to some sectors of the economy on the sole grounds that they are ecologically unsustainable. Rather, the aim is to be carbon-neutral in a “transitioning economy”, Khara stated. “So if at all we are financing like that (for water-guzzling rice cultivation in Punjab), we’ll also have to finance many green projects, which we are doing. Going forward, when we have alternate means available, we can go beyond neutrality and be in a position to reduce carbon emissions,” he stated.