Revolutionizing MSME lending, the model enables faster, objective, and fully digital loan assessments, significantly reducing paperwork, processing time, and reliance on physical documentation

The New Digital Credit Assessment Model for MSMEs was announced in the Union Budget 2024-25. The model envisioned that the Public sector banks (PSBs) will build their in-house capability to assess MSMEs for credit, instead of relying on external assessment. PSBs would develop a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy. Subsequently, Union Finance Minister had launched the New Credit Assessment Model for MSMEs on 6th March, 2025.

The model leverages the digitally fetched and verifiable data and devises 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 Pan authentication using National Securities Depository Limited (NSDL), Mobile and email verification using OTP, Application Programming Interface (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 Credit Information Companies (CICs), fraud checks, through APIs, among others. The model is live with all banks with different loan amount threshold.

Under Traditional / Manual methods, banks rely on physical documents submitted by customers for manual underwriting. While under new credit assessment model, credit request and data submission as well as assessment is done entirely through digital process.

The introduction of the new digital credit assessment model does not involve any fundamental changes in the basic eligibility criteria for MSME loans in terms of regulatory norms or policy guidelines of individual bank. However, it simplifies the process of sanctioning loans and offers a more user-friendly and standardized approach by relying on digitally available data.

Between 1st April and 15th July, 2025, a total of 98,995 MSME loan applications have been sanctioned by the Public Sector Banks (PSBs) under New Credit Assessment Model.

Bank loans through new digital credit assessment model are decided within maximum of upto one day significantly reducing the turn around time (TAT) as compared to manual methods.

The benefits to MSMEs by use of this model include 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, reduced TAT, credit decision based on objective data/ transactional behaviour among others.

Under the new model, credit decision is based on objective data/ transactional behaviour and credit history of the borrower. Further, credit request submission & assessment is done entirely through digital process which reduces subjectivity, fraudulent submission of credit information & error in decision making. This enables faster, transparent and more objective assessment of creditworthiness using system-generated credit logic and scorecards. Business Rule Engines (BREs) of banks will capture all risks as per its credit risk management policy.

This information was given by Minister of State in the Ministry of Finance Shri Pankaj Chaudhary in a written reply to a question in Lok Sabha today.

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Digital credit assessment enables objective, fully digital MSME loan decisions, reducing processing time and paperwork. The digital credit assessment model requires public sector banks to perform in-house, fully digital MSME loan appraisals using verifiable digital data (PAN, OTPs, GST, ITR, account aggregator, bureau/CIC data and fraud APIs) and system-generated scorecards. Applicable to ETB and NTB borrowers, it preserves existing eligibility norms while standardising and expediting sanctioning through objective decision logic and Business Rule Engines, reducing paperwork, subjectivity and turnaround time.