PSU Banks will launch a New Credit Risk Model for MSME Loans by November End, Know Details

Public Sector Banks (PSBs) are set to launch a new credit risk assessment model for micro, small, and medium enterprises (MSMEs) applying for loans between ₹25 lakh and ₹5 crore.

Launch Timeline and Banks Involved

• November 25: Bank of India, Punjab & Sind Bank, Canara Bank, and Indian Bank will roll out the model.
• November 30: Six additional PSBs, including Bank of Baroda (BoB), Union Bank of India, UCO Bank, and Punjab National Bank, will implement the model.

Purpose of the New Model

Announced during the Budget speech by Finance Minister Nirmala Sitharaman, the new model is designed to replace reliance on external credit assessments. Instead, it leverages the digital footprints of MSMEs for a more accurate evaluation. This approach is particularly beneficial for MSMEs without formal accounting systems, addressing gaps in the traditional asset- or turnover-based credit assessments.

Key Features and Coverage

• Loan Categories:
• Indian Bank and State Bank of India (SBI) will assess loans up to ₹5 crore under this model.
• Nine PSBs, including Bank of Baroda, Canara Bank, and Bank of Maharashtra, will offer loans up to ₹25 lakh.
• Bank of India will provide loans up to ₹1 crore.

Significance of MSMEs

MSMEs are vital to India’s economy, contributing over 30% to the GDP and nearly 50% to exports. This initiative aims to simplify access to credit, especially for small businesses, fostering growth in the sector.

Supporting Initiatives

Earlier this week, the Finance Minister also announced progress on a ₹100 crore Credit Guarantee Scheme for MSMEs. This scheme, introduced in the Budget, aims to provide financial support to MSMEs during times of distress.

• The proposal is expected to be placed before the Union Cabinet for approval soon.
• Once approved, it will be implemented through the MSME Ministry and banks.

This new model, combined with the credit guarantee scheme, is a step forward in enhancing financial inclusion and resilience for the MSME sector.