Banks must look beyond collateral to fund new-age industries: SBI MD

New Delhi: Cash-flow-based lending will play an increasingly important role in financing data centres, solar manufacturing and technology-driven businesses, State Bank of India Managing Director Ashwini Kumar Tewari said on Friday.

Speaking at a financial market conclave hosted by BCC&I, Tewari said banks need to develop lending models suited to businesses that may lack the tangible collateral traditionally required for finance.

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Lenders must look beyond security alone to support emerging industries, including pharmaceuticals and new technology businesses, he said.

SBI adopting cash-flow-based models

Tewari said SBI is already using cash-flow-based lending models for emerging sectors, referring to an initiative called CHAKRA.

“We are also looking at cash flow-based lending. We are already doing that,” he said, citing data centres and the solar manufacturing chain among the areas being examined.

Such lending requires banks to understand a business’s underlying technology, revenue prospects, economics and ability to generate cash before extending finance, he added.

Technology assessment key to financing

Drawing on SBI’s experience in the solar sector, Tewari said closer scrutiny had revealed that some technologies were outdated. Different technologies also have different power-generation economics, making technical understanding essential to lending decisions.

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Banks would find it difficult to finance these projects without assessing how technology choices affect commercial viability, he said.

“There is still a difficulty in establishing the revenue, to establish the economics and the cash flow generation, et cetera,” Tewari said.

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