SBI Chairman CS Setty: Enhancements in Digitalisation Boost Lending to MSMEs
On September 2, State Bank of India (SBI) Chairman CS Setty addressed the ongoing challenges in lending to micro, small, and medium enterprises (MSMEs) and the agriculture sector, despite significant advancements in digitalisation and formalisation. He noted that while these changes have improved the credit landscape, lending to these sectors is still not entirely seamless.
Setty explained that credit should ideally flow more freely to MSMEs and agriculture; however, historical informality in these sectors has hindered credit absorption. "Digitalisation and formalisation have transformed this landscape, allowing us to create new models for providing credit to previously underserved MSMEs," he said.
Despite these positive developments, he acknowledged that a large number of MSMEs still lack sufficient credit access. For these enterprises to succeed, they require not only financing but also governance, technology, and market connections. Setty emphasized that although financial institutions are becoming more comfortable with lending to MSMEs due to enhanced formalisation, improving the sectors' capacity to utilize credit effectively is crucial.
Setty also highlighted broader banking sector challenges, stating that stagnant deposit growth could potentially affect credit expansion. He mentioned that future credit growth may depend more on the entire financial ecosystem rather than solely on banks, marking a shift towards a more diversified financial structure.
"The focus is increasingly on attracting investments, particularly in capital formation," Setty remarked. He pointed out that while traditional banking has been the backbone of the economy, there is now a shift toward leveraging investments from pension funds, insurance, and equity markets for capital growth. He suggested that enhancing the corporate bond market could be a viable solution.
The SBI Chairman emphasized the need for non-bank entities like insurance companies, mutual funds, and pension funds to take a more proactive role in the corporate bond market to secure strong returns on capital. He also noted that universal banks must cultivate the skills necessary to innovate and introduce new financial products.
Furthermore, Setty highlighted the importance of specialized skills in financing, especially in emerging sectors that require future investments. He stated that large universal banks like SBI are well-positioned to lead in infrastructure financing, although they need to bridge existing skill gaps for evaluating new areas.
Finally, Setty stressed the growing importance of cybersecurity as digitalisation advances. He urged all stakeholders, including industry organizations like the Confederation of Indian Industry (CII), to prioritize cybersecurity measures, deeming it a critical issue as the financial sector evolves in the digital era.
