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Informist, Friday, Jan. 10, 2025

 

--SBI Setty: Indian capital markets have deepened significantly 

--SBI Setty: MFs emerged as key players in capital markets 

--SBI Setty: MSMEs need capital to propel India's growth 

--SBI Setty: Need to widen pool of listed companies 

 

MUMBAI – Capital markets should increase their focus on providing credit to micro, small, and medium enterprises, State Bank of India Chairman C.S. Setty said at a symposium on the securities market Friday. "...for greater involvement of capital markets in funding these important pillars of the economy, we will need to find a way to formalise and collate all these disparate sources of information and create a repository to enable investors to correctly price the credit risk on these MSMEs," he said.

 

Setty said the biggest challenge for banks to provide credit to these entities is the lack of credit information relating to them and the resultant information asymmetry. On the equity side, the small and medium enterprises platforms of the exchanges have become a viable alternative for micro, small, and medium enterprises to raise equity capital, but owing to the limitations of information, it becomes difficult for banks or debt capital markets to properly price the risk involved, he added.

 

The SBI chief also said a viable mechanism is needed to ensure that funds are used for the intended purposes. "We will require a viable mechanism to track the actual use of these funds to ensure that the funds are utilised for the purposes they have been raised for, probably through the establishment of a separate market infrastructure institution with powers to track the use of borrowed funds or the funds raised through equities," Setty said. Such a platform could give comfort to lenders as well as investors, and make pricing more competitive, he said.

 

Capital markets must gear up for the additional supply of savings to the tune of 3.5% of GDP, over and above what is currently coming in as annual inflows, Setty said. He added that these inflows will come from a segment of investors that is young and has a different risk appetite. Setty said it is important that institutional arrangements, such as mutual funds and primary markets, look at this segment as an opportunity. 

 

"At the macroeconomic level, till 2036, we expect a growth rate of at least 8-9% on average," Setty said. "This rate can be achieved if we can increase investment rates to 35% by 2036, approximately 200 basis points higher from the levels in 2024. Thus, the domestic savings rates must rise from the present level by at least 350 bps to 33.5%, so that the CAD (current account deficit) stays around 1.5% of GDP, the long-term sustainable level for India."

 

On financing green projects, Setty said it is important to identify institutional gaps that need to be plugged to mobilise funding with minimum possible impact costs. 

 

He said Indian capital markets have come up as a global alternative where multinational corporations are looking at listing their Indian subsidiaries, making India the only non-home jurisdiction where such companies list their subsidiaries. "Deeper and more efficient equity and debt markets can be more effective in helping to mobilise and deploy domestic savings, thereby complementing traditional bank lending by fostering long-term investments," the SBI chairman said. He added that vibrant capital markets can protect the Indian economy from volatile fluctuations in capital flows and reduce dependency on foreign debt.  End

 

Reported by Kshipra Petkar

Edited by Rajeev Pai

 

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