Cash-flow-based lending key to financing new-age industries: SBI MD

Banks need to develop new lending models, as emerging businesses may not have the traditional collateral required for bank finance, he said

Cash-flow-based lending will become increasingly important for financing new-age industries like data centres, solar manufacturing and technology-driven businesses, a senior bank official said on Friday.

Banks need to develop new lending models, as emerging businesses may not have the traditional collateral required for bank finance, the official added.

"Unless banks are able to find ways to fund these kinds of new businesses, whether it is pharma or technology, new technology...tangible security per se, the banks necessarily need to move from just collateral of security," Ashwini Kumar Tewari, Managing Director at State Bank of India, said at a financial market conclave hosted here by BCC&I.

Tewari said SBI is already looking at cash-flow-based lending and is applying such models to emerging sectors.

"We are also looking at cash flow-based lending. We are already doing that. We call it CHAKRA, he said, adding that "it is a very big device because it is very emergent in the world of technology...These are data centres, static conductors, solar manufacturing chain and so on".

He said banks need to understand the technology, revenue potential, economics and cash-flow generation of new-age businesses before extending finance.

"In the case of solar, we started getting into detail. We found that there is a lot of technology which is outdated..." Tewari said.

He added that different technologies have different power-generation economics and banks would find it difficult to fund such projects unless they understand these aspects.

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