Cash flows, not ratings may decide loans in future: UCO Bank’’s Ajay Vyas – The Hindu

Clipped from: https://www.thehindu.com/business/Industry/cash-flows-not-ratings-may-decide-loans-in-future-uco-banks-ajay-vyas/article33412983.ece

Trend has already begun with SBI, says ED of UCO Bank.

Moving on from ratings criteria for grant of loans, banks are likely to focus on cash flow-based lending in time to come, according to a a top executive of UCO Bank.

“Banks will focus on cash flow-based lending in time 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’ organised by PHD Chamber.

Various SBI officials have advocated 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.

Mr. Vyas further noted the turnaround time (TAT) for grant of loans needs to come down and emphasised that it was important to move on from ratings criteria for grant of loans.

AI for lending

According to Mr. Vyas, artificial intelligence, algorithms and prediction analysis are the future of lending norms for banks to follow.

On banks’ exposure to the realty sector through non-banking financial companies (NBFCs), DMD, Commercial Credit Group-II (North & South), SBI Thekepat Keshav Kumar said, “it is wrong to say that banks were lending to NBFCs and [hence] indirectly to the real estate companies as very few NBFCs have stakes in the real estate sector.”

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