The Model will leverage digitally fetched and verifiable data to devise automated MSME Loan appraisal for MSMEs

In the Post Budget interaction at Vishakhapatnam today, the Union Finance and Corporate Affairs Minister, Smt. Nirmala Sitharaman and Minister of State, Finance Shri Pankaj Chaudhary launched the New Credit Assessment Model based on the scoring of digital footprints of MSMEs. It was announced in the Union Budget 2024-25 that Public sector banks (PSBs) will build their in-house capability to assess MSMEs for credit, instead of relying on external assessment. PSBs will develop a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy.

This credit assessment model will leverage the digitally fetched and verifiable data available in the ecosystem and devise automated journeys for MSME Loan appraisal using objective decisioning for all loan applications and model-based limit assessment for both Existing to Bank (ETB) as well as New to Bank (NTB) MSME borrowers.

The digital footprints used by the model may include Name and Pan authentication using NSDL, Mobile and email verification using OTP, API fetch of GST data through service providers, Bank Statement Analysis using account aggregator, ITR upload and verification, API enabled commercial and consumer bureau fetch and due diligence using CICs, fraud checks, Hunter checks through APIs, among others.

The benefits to MSMEs by use of this model includes submission of application from anywhere through online mode, reduced paperwork and Branch visit, instant in-principle sanction through digital mode, seamless processing of credit proposals, end to end straight through process (STP), reduced turnaround time (TAT), Credit decision based on objective data/ Transactional behaviour and credit history, no Physical collateral securities for loans covered under CGTMSE, among others.

The credit assessment model for MSMEs based on digital footprints is expected to be a significant improvement over the traditional assessment of credit eligibility based only on asset or turnover criteria. That will also cover MSMEs without a formal accounting system.

Digital credit assessment for MSMEs enables automated, objective loan appraisal and model-based limits for ETB and NTB borrowers. Public sector banks must build an in house digital credit assessment model for MSMEs that uses verifiable digital footprints and API fetched data to provide automated, objective loan appraisal and model based limit assessment for both Existing to Bank and New to Bank MSME borrowers, enabling online applications, straight through processing, reduced paperwork and turnaround time, and credit decisions based on transactional behaviour and verified data.