SBI Chairman Proposes Dedicated Institution to Monitor Small Business Fund Utilization
State Bank of India (SBI) Chairman, C.S. Setty, has called for the establishment of a market infrastructure institution to track the end-use of funds raised by small businesses, either through borrowing or equity. Highlighting the importance of ensuring that funds are used for their intended purposes, Setty emphasized the need for a 'viable mechanism' to address growing concerns over fund utilization.
Speaking at a conference organized by the Sebi-promoted National Institute of Securities Markets (NISM), Setty proposed the creation of a dedicated platform that would provide reassurance to lenders and investors while fostering competitive pricing. “We will require a viable mechanism to track the actual use of these funds to ensure that the funds are utilized for the purposes they have been raised for, probably through the establishment of a separate market infrastructure institution”, he said.
The Reserve Bank of India (RBI) has previously urged lenders to monitor the end-use of funds, especially for small business borrowings. In March 2023, the central bank directed lenders issuing business credit cards to ensure that the funds are used for legitimate business purposes. Concerns have also surfaced about unsecured loans being diverted to riskier investments in derivative markets.
Setty stressed the need for robust capital inflows to achieve India's growth ambitions. He outlined that achieving developed-nation status by 2047 would require consistent GDP growth of 8-9% until 2036. For this, India will need to significantly increase its domestic saving rate by 3.5 percentage points to 33.5%.
Addressing the challenges faced by Micro, Small, and Medium Enterprises (MSMEs), Setty noted the lack of proper financial records and credit ratings, which complicates risk assessment for banks and investors. He proposed formalizing and consolidating financial data from diverse sources into a repository to enable accurate credit risk pricing. "For greater involvement of capital markets in funding these important pillars of the economy, we need to find a way to collate and formalize all these disparate sources of information", he added.
The SBI Chairman also emphasized the importance of green financing and called for identifying institutional gaps to mobilize funds with minimal impact costs. He highlighted that mutual funds and primary markets bear the responsibility of ensuring funds are not misused, especially in speculative markets.
Setty concluded by advocating for greater depth in India’s equity markets to support capital mobilization. He stressed that such initiatives would provide much-needed support for MSMEs and contribute to achieving India's ambitious growth goals.
The proposal underscores a broader effort to ensure financial discipline and align small business funding with national development objectives.
