Mutual funds, insurance and pension funds should step in corporate lending, says SBI Chairman

Setty highlighted that with the continuous flow of savings in these markets, there is a need for them to step in the lending process.

The chairman of the country’s largest bank believes that alternative financial market instruments like mutual funds, insurance funds and pension funds must start corporate lending. “Some of future credit growth and funding is also to be done by some of the new age financial markets. Not only markets but mutual funds, pension funds, insurance funds, I think they all have to come into corporate financing,” CS Setty said at the Bengal Chamber of Commerce’s Financial Market Conclave 2024 on September 18 in Mumbai.

In the last few months, household savings have been diversifying to different markets like mutual funds, etc. “How will the continuous credit be funded? Is it going to be funded only by deposits? And if there were household savings which were captured by the banking system some are also been captured by other financial services players,” Setty said.

Here, Setty highlighted that with the continuous flow of savings in these markets, there is a need for them to step in the lending process.

On risk building in small ticket and unsecured loans, Setty said that some concerns are building in these pockets. “We have seen that small value loans have problems, loans worth Rs 15,000 to Rs 1 lakh personal loans. This is because of the large number of new to-credit customers accessing the market,” Setty said but highlighted that these issues have not reached the level that the industry needs to worry about.

The efficiency of combating this problem, according to Setty, can be done with more focused data-based lending. “Much of this unsecured lending happens on bureau data. Data-based lending will be much more robust and bureau data available at more frequent intervals would definitely help in moderating the risks,” Setty said.

Earlier, bureau data on borrowers was available every two months. But effective January 1, 2025, the Reserve Bank of India (RBI) wants lenders to report the data at least once a fortnight, on the 15th and the last date of the month. The data should be shared within seven days of the end of the relevant fortnight, and the bureau must ingest the data within five days. A lender can share the data with the bureau at shorter intervals — potentially weekly or daily — if they so choose.