Public Sector Banks to launch MSME credit model in November

Public Sector Banks (PSBs) plan to launch a new credit risk model for MSMEs, aiming to simplify loan assessments based on digital footprints, with a focus on loans up to INR 5 crore

Outlook Business Desk

Updated on: 18 November 2024 7:01 pm

MSME credit model

Public Sector Banks (PSBs) are set to launch a new credit risk assessment model for micro, small, and medium enterprises (MSMEs) seeking loans between INR 25 lakh and INR5 crore, according to a Business Standard report.

Bank of India, Punjab & Sind Bank, Canara Bank, and Indian Bank plan to roll out the model on November 25, while six other PSBs, including Bank of Baroda (BoB), Union Bank of India, UCO Bank, and Punjab National Bank, aim to launch it by November 30.

In her Budget speech in July, Finance Minister Nirmala Sitharaman emphasised that PSBs will lead the development of an in-house credit assessment model based on the digital footprints of MSMEs, rather than relying on external assessments.

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This model aims to be a significant improvement over traditional methods, which focus on asset or turnover criteria. It will also support MSMEs without formal accounting systems.

Indian Bank and State Bank of India (SBI) will assess loans up to INR 5 crore through this model. Initially, nine PSBs, including Bank of Baroda, Canara Bank, and Bank of Maharashtra, will offer loans up to INR 25 lakh, while Bank of India will provide loans up to INR 1 crore.

MSMEs play a crucial role in India's economy, contributing over 30 per cent of the national GDP and nearly 50 per cent of its exports.

Earlier this week, Sitharaman announced that the INR 100 crore credit guarantee scheme for MSMEs, introduced in the Budget, will soon be presented to the Union Cabinet for approval. This scheme is designed to support MSMEs in times of distress, alongside other initiatives outlined in the Budget, stated the Business Standard report.

“The credit guarantee scheme will be placed before the Cabinet soon, and once approved, it will be implemented through the MSME Ministry and banks,” she said at the National MSME Cluster Outreach Programme.

This model will use digital data and other factors to assess loan eligibility, making it more accurate than traditional models that only look at assets or turnover.