InvestorQ : What does it mean when UCO Bank director says that they will be focusing more on cash flows based lending?
Ria Jain made post

What does it mean when UCO Bank director says that they will be focusing more on cash flows based lending?

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Dia Deshpande answered.
3 months ago
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I also read that interview by the UCO Bank director on the subject of cash flows based funding. Actually, that is something SBI has already embarked on and that is what the UCO Bank director was referring to when he said that SBI was already following that practice but that had to become a more generalized banking practice in India, among PSU banks.

Banking insiders have privately commented that there is an interesting trend triggered by SBI and they expect this trend to catch on very fast, even if it may sound prima facie more risky. Banks will move from ratings criteria for granting loans to cash flows based lending. Hence absence of physical assets will not be a constraint to get bank funding.

In fact, SBI has been advocating cash flow-based lending model for a very long time as a better choice over the traditional asset based and ratings based models. The traditional models were not only a limited reflection of borrowing capacity but they also kept most of the banks out of the ambit of lending to new and emerging sectors.

In the proposed new model, lending would be done predominantly on the basis of future cash flows and ratified by past cash flows. Senior bankers have added that they also need to focus on artificial intelligence, algorithms and predictive models for lending, which can be really instrumental in reducing the high incidence of NPAs prevalent among PSU banks.

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