SBI moves from balance sheet-based to cash flow-based lending

Decision sparked by mounting NPAs; mid-corporate bad loans account for 41% of total NPAs worth Rs 1.02 lakh crore

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In view of rising non-performing assets (NPAs) in the corporate sector, State Bank of India (SBI) has moved towards a projected-cash-flow financing from the earlier practice of balance-sheet financing.

“We have moved to cash-flow financing from balance-sheet funding,” said Rajnish Kumar, managing director, SBI.

Notably, mid-corporate accounts for highest NPAs in SBI. In first quarter of this financial year, of the gross NPAs of around Rs 1,01,541 crore, the share of mid-corporate companies alone was around Rs 42,248 crore, or close to around 41 per cent of gross NPAs. The bank has increased its vigil of loans in the mid-corporate sector, by keeping a watch on cash flow management and equity structure.

"We are keeping a close watch on cash management in accounts where SBI is the lead banker. Especially in the mid-corporate sector, we are looking at how much cash the asset generates to service the debt," said Sunil Srivastava, deputy managing director, SBI. This apart, the bank is also seeking visibility of promoters' equity while sanctioning loans, he added.

Also, while lending cautiously to the corporate sector, SBI will increase its focus on lending to small and medium enterprises (SMEs). This year, the bank is targeting a growth of 12-13 per cent in the SME loan portfolio, against nearly flat growth in the segment last financial year, said Kumar. In the SME segment also, the bank is giving loans on the basis of projected cash flow.

At present, SBI’s SMEs loan portfolio is close to Rs 2 lakh crore, of which nearly 50 per cent lending is based on projected cash-flow assessment, said Kumar.

This year, the bank has projected a total loan growth of 13-14 per cent.

“In the corporate sector, the demand for loans has been much less. There are no major projects which consume huge capital,” said Kumar.

Merger of banks
SBI expects to complete merger with associate banks by the end of this financial year, said Kumar.

Merger of five associate banks and Bharatiya Mahila Bank with SBI will create a banking entity with a total business of nearly Rs 40 lakh crore, accounting for nearly 22 per cent market share, he added.