SBI to Shift to Cash-Flow Based Lending for MSME Loans Up to ₹5 Crore: Chairman Setty

State Bank of India (SBI) is set to shift from collateral-based lending to cash-flow based lending for all Micro, Small, and Medium Enterprises (MSME) loans up to ₹5 crore, according to newly appointed chairman C.S. Setty. Speaking at the Financing 3.0 Summit, organized by the Confederation of Indian Industry (CII), Setty highlighted that this move is aimed at fostering the growth of micro enterprises and helping them transition to small and medium enterprises.

“Up to ₹5 crore, we want to transition from collateral-based lending to cash-flow based lending, backed by a guarantee, which will provide enough traction for micro enterprises to grow into small businesses, and small businesses to evolve into medium enterprises,” Setty said.

He noted that credit access for MSMEs has traditionally been low, primarily due to the lack of formalization and the absence of specialized skill sets needed to assess and lend to certain niche segments. “Each type of financing requires different skill sets,” Setty explained, emphasizing that lenders need to innovate continuously, especially when delivering corporate credit in complex and emerging sectors like battery storage and hydrogen energy.

Setty revealed that SBI is collaborating with multilateral development banks (MDBs) and large multinational banks to build these specialized verticals. This approach will not only improve corporate credit but also aid MSME financing. He pointed out that transitioning to cash-flow driven credit from collateral-based lending requires a shift in the mindset of lenders. To facilitate this change, guarantees will provide the necessary comfort for scaling up businesses.

Chief Economic Advisor V. Anantha Nageswaran emphasized the importance of invoice discounting for corporates—both PSUs and private entities—as improving working capital cycles would make it easier for MSMEs to access credit. Sanjiv Bajaj, Chairman and Managing Director of Bajaj Finserv, echoed this sentiment, adding that while the development of the digital stack is helping credit growth, the country must encourage the growth of new banks and NBFCs.

Setty also underlined the need to expand India’s corporate bond market to improve credit access. He stressed that domestic institutional investors such as mutual funds, pension funds, and insurance companies need to play a more prominent role in this area. “Commercial banks can only do so much in corporate bonds. We need non-bank participants to design products and bring capital back into the system,” he said.

Setty warned that the ongoing discussion about sluggish deposit growth in the banking sector could impact credit growth. He concluded that future credit growth would likely be driven by a combination of financial sector players, not just banks alone.

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