New Credit Assessment Model for MSMEs launched

Visakhapatnam: Union Finance and Corporate Affairs Minister Nirmala Sitharaman, alongside Minister of State for Finance Pankaj Chaudhary, unveiled a new Credit Assessment Model today, which focuses on evaluating the digital footprints of Micro, Small, and Medium Enterprises (MSMEs) during a post-Budget discussion.

As highlighted in the Union Budget for 2024-25, public sector banks (PSBs) are set to enhance their internal capabilities for assessing MSME creditworthiness, moving away from dependence on external evaluations.

This innovative credit assessment framework will utilize digitally sourced and verifiable data from the ecosystem, creating automated processes for MSME loan evaluations. It aims to implement objective decision-making for all loan applications and establish model-based limit assessments for both  Existing to Bank (ETB) as well as New to Bank (NTB) MSME borrowers.

The model utilizes various digital footprints, which may encompass Name and PAN authentication via NSDL, mobile and email verification through OTP, GST data retrieval from service providers, analysis of bank statements using account aggregators, and the upload and verification of Income Tax Returns (ITR). Additionally, it employs API-enabled access to commercial and consumer bureau data, due diligence through Credit Information Companies (CICs), and conducts fraud and Hunter checks via APIs, among other methods.

For MSMEs, this model offers numerous advantages, such as the ability to submit applications online from any location, significantly less paperwork, and fewer visits to branches. It facilitates instant in-principle approvals through digital channels, ensures smooth processing of credit proposals, and implements a fully automated straight-through process (STP) that minimizes turnaround time (TAT). Furthermore, credit decisions are based on objective data, transactional behavior, and credit history, with no requirement for physical collateral securities for loans covered under CGTMSE, among other benefits.

The new credit assessment model for micro, small, and medium enterprises (MSMEs) that leverages digital footprints is anticipated to greatly enhance the conventional methods of evaluating creditworthiness, which typically rely solely on asset or turnover metrics. This innovative approach will also extend its benefits to MSMEs that lack a formal accounting framework.

– global bihari bureau