(ET)
After decades India’s government-owned banks are likely to change the way they lend. Since the 1970s, public sector banks have given out most working capital loans — required for day-to-day operations of a business — on the basis of net current assets of corporate borrowers, a flawed system that is believed to have resulted in over-funding to some and under-funding to others.
The outdated practice may soon change, with the country’s largest lender, State Bank of India proposing a transition from an ‘asset-based lending’ model to ‘cashflow-based lending’ — a mechanism that, among other things, may reduce misuse of funds by borrowers and enable banks to figure out ability of borrowers to service loans on time.
