Banks need to look for other borrowers as corporates are tapping capital markets: SBI Chairperson

Banks need to step up efforts to find other borrowers as corporate India has started to tap capital markets for funds, State Bank of India (SBI) Chairman C.S. Setty said here on Monday.

“Operational and corporate funding has shown some shift towards capital markets and private credit for their long term financial requirements. So, banks have to deliberately look to step up and [look for] the next wave of long-term capitalists essential for India’s growth ambition,” Mr. Setty said, speaking at the FICCI Banking Conference 2025.                                                                                   

According to data of over 6,000 listed companies in the FIBAC report, 46% of corporate funding was secured through banks in fiscal 2024. This was 69% a decade ago. The share of debentures and other sources like  term loans from non-banking sources and other long-term funding sources increased to 54% last fiscal. This was 31% in fiscal 2014.

Among bank credit, 64% was for working capital needs and just 36% tapped banks for term loans as of fiscal 2025.

The share of term loans was higher in fiscal 2019, constituting 45% of corporate loans.

Apart from the capital market becoming more attractive as a funding source, slow growth in capital expenditure in the private sector and companies using their cash balances for internal funding also contributed to the sluggish growth in corporate loans, he said.

Mr. Setty underlined that start-up and MSME fundings were new avenues where banks could increase lending. The banking sector is set for a rough second quarter, the net profit grew at a rate of just 4% owing to a decline in net interest margin in first quarter of fiscal 2024, according to a report by Kotak Institutional Equities (KIE).

“NIM declined approximately 10-20 basis points  on a quarter-on-quarter basis,  across lenders, as the liability side re-pricing is slower than the asset side re-pricing,” said analysts at KIE adding that they expected the second quarter of fiscal 26 to be the most challenging quarter on this metric, considering the recent rate cycle.