Banks likely to focus on cash flow-based lending in future

New Delhi: Moving on from ratings criteria for grant of loans, banks are likely to focus on cash flow-based lending in times to come, a top executive of UCO Bank has said.

"Banks will focus on cash flow based lending in times to come and this has already been started by SBI," Ajay Vyas, Executive Director, UCO Bank said at a virtual panel discussion on Redefining Corporate Financing in New Normal organized by PHD Chamber on December 23, 2020.

Various SBI officials have advocated for cash flow-based lending models over the traditional asset-based or ratings-based ones. In cash flow lending, a financial institution grants a loan that is backed by the recipient's past and future cash flows.

Vyas further noted that the turnaround time (TAT) for grant of loans need to come down and emphasized that it is important to move on from ratings criteria for grant of loans. According to Vyas, Artificial Intelligence, algorithms, prediction analysis are the future of lending norms for banks to follow.

Speaking on banks' exposure to realty sector through Non-Banking Financial Companies (NBFCs), the DMD, Commercial Credit Group-II (North& South), State Bank of India Thekepat Keshav Kumar said "it is wrong to say that banks were lending to NBFCs and indirectly to the real estate companies as very less NBFCs have stakes in the real estate sector".

PHDCCI President Sanjay Aggarwal said those who deserve and are in dire need of funds need to be granted loans even as checks and balances may be put on more stringently. It is important to promote businesses, he said.