Public Sector Banks to Introduce MSME Credit Model

Public Sector Banks (PSBs) are gearing up to implement a new credit risk assessment model tailored for micro, small, and medium enterprises (MSMEs) seeking loans ranging from INR 25 lakh to INR 5 crore.

Bank of India, Punjab & Sind Bank, Canara Bank, and Indian Bank are scheduled to launch the model on November soon, while six additional PSBs, including Bank of Baroda (BoB), Union Bank of India, UCO Bank, and Punjab National Bank, plan to follow suit.

In her July Budget address, Finance Minister Nirmala Sitharaman highlighted that PSBs would develop an in-house credit assessment system leveraging MSMEs' digital footprints rather than relying on external evaluations. This model is expected to surpass traditional methods that primarily focus on asset or turnover criteria, offering support to MSMEs that may not maintain formal accounting systems.

Indian Bank and State Bank of India (SBI) will initially assess loans of up to INR 5 crore using this model. Additionally, nine PSBs, including Bank of Baroda, Canara Bank, and Bank of Maharashtra, will provide loans up to INR 25 lakh, with Bank of India extending the limit to INR 1 crore.

MSMEs, which contribute over 30% of India’s GDP and nearly 50% of its exports, hold a vital position in the country’s economy. Earlier this week, Finance Minister Sitharaman announced that the INR 100 crore credit guarantee scheme for MSMEs, proposed in the Budget, will soon be reviewed by the Union Cabinet. This initiative, aimed at providing relief to MSMEs in challenging times, is part of broader support measures outlined in the Budget.

“The credit guarantee scheme will be presented to the Cabinet shortly. Once approved, it will be implemented by the MSME Ministry in collaboration with banks,” Sitharaman stated during the National MSME Cluster Outreach Programme.

By incorporating digital data into loan eligibility assessments, this model aims to provide a more accurate and inclusive approach compared to traditional methods based solely on assets or turnover.