PSBs set to launch MSME credit model this month, reveals document

Amid directions from the finance ministry, most public sector banks (PSBs) are ready to launch the credit risk assessment model for micro, small and medium enterprises (MSMEs), with a loan amount between Rs 25 lakh and Rs 5 crore to be assessed by the model for different banks, according to an internal government document reviewed by Business Standard.

 

Bank of India, Punjab & Sind Bank, Canara Bank and Indian Bank are planning to launch this model on November 25.

 

Six other PSBs, including Bank of Baroda (BoB), Union Bank of India, UCO Bank, Central Bank of India, Indian Overseas Bank and Punjab National Bank are expected to launch the model by November 30.

 

During her Budget speech in July, Finance Minister Nirmala Sitharaman said, “Public sector banks will build their in-house capabilities to assess MSMEs for credit, instead of relying on external assessment. They will also take the lead in developing or getting developed a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy. This is expected to be a significant improvement over the traditional assessment of credit eligibility based on asset or turnover criteria. That will also cover MSMEs without a formal accounting system.” 

 

Indian Bank and State Bank of India (SBI) will assess loans up to Rs 5 crore through this model.

 

Initially, nine PSBs such as Bank of Baroda, Canara Bank, Bank of Maharashtra and others will allow loans only up to Rs 25 lakh. Bank of India will offer loans up to Rs 1 crore.

 

MSMEs play a critical role in India's economic growth, contributing significantly to employment, innovation, and overall gross domestic product (GDP).

 

These enterprises account for more than 30 per cent of the nation's GDP and nearly 50 per cent of its exports, making them a vital part of the country's industrial framework.

 

With over 63 million MSMEs operating across both urban and rural areas, they are instrumental in promoting regional development and narrowing income gaps.

 

A senior bank official said that unlike conventional credit assessment models, which primarily rely on credit scores, the new internal system offers a more comprehensive approach.

 

“It evaluates a range of factors, including an MSME’s supply chain dynamics, digital footprint, and industry-specific conditions. It ensures a more nuanced and accurate assessment,” said the official.

 

SBI disbursed Rs 52,154.23 crore to MSMEs in financial year 2024-25 as on September 30, 2024, showed the internal document.

 

The document further noted that PNB disbursed Rs 25,028 crore, BoB Rs 16,271.80 crore and Canara Bank Rs 16,613 crore.

 

According to the latest data from the Reserve Bank of India (RBI), bank credit to micro and small industries grew at a slower pace — 9.9 per cent year-on-year (Y-o-Y) until June 2, 2024 — compared to overall bank loan growth of 15.4 per cent.

 

Loans to medium enterprises grew by 11 per cent during the same period.

 

Earlier this week, Sitharaman had said that the Rs 100 crore credit guarantee scheme for MSMEs, which was announced in the Budget, will soon be placed before the Union Cabinet for approval.

 

Highlighting the five announcements made in this Budget for MSMEs, she said the introduction of a special credit guarantee corpus to help MSMEs will help during the time of distress.

 

“The Rs 100 crore credit guarantee scheme will soon be placed before the Cabinet. Immediately after getting approval, the scheme that will provide guarantees through the MSME ministry and banks will be implemented,” she had said while attending the National MSME Cluster Outreach Programme.