On September 2, CS Setty, who recently assumed the role of Chairman of the State Bank of India (SBI), provided insights into the current challenges and advancements in lending to small and medium enterprises (SMEs) and the agriculture sector. Setty acknowledged that while digitalisation and formalisation have significantly reshaped the credit landscape, lending to these sectors is not yet entirely frictionless. Despite improvements, a substantial portion of SMEs continues to face difficulties in accessing adequate credit due to historical informality and issues with credit absorption.
Setty noted the ongoing competition for deposits within the banking sector but expressed confidence in SBI’s strong deposit base. He highlighted that banks are increasingly confident in lending to SMEs as a result of greater formalisation. However, he suggested that non-bank financial companies (NBFCs) should also share some of the credit demand to alleviate pressure on banks.
In addition to addressing credit access, Setty discussed broader financial system dynamics, including the shift from a banking-led economy to a more diversified financial system. He emphasized the importance of attracting investments into capital formation and suggested that deepening the corporate bond market could be a key solution. Setty also highlighted the critical role of non-bank financial participants, such as insurance companies, mutual funds, and pension funds, in supporting the corporate bond market and ensuring robust capital returns.
Furthermore, Setty underscored the need for universal banks to enhance their skills in financing emerging sectors and developing innovative financial products. Despite SBI’s extensive experience in project financing, there remains a gap in the skill set required to evaluate new and emerging areas. Lastly, he stressed the importance of addressing cybersecurity risks as digitalisation continues to advance, urging all stakeholders, including the Confederation of Indian Industry (CII), to prioritize cybersecurity to safeguard the expanding digital financial ecosystem.
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