Executive Summary:
The Ministry of Finance launched a New Digital Credit Assessment Model for MSMEs on March 6, 2025, as announced in the Union Budget 2024-25. This model, utilizing digital footprints for credit assessment, aims to streamline loan appraisal by Public Sector Banks (PSBs). It does not fundamentally alter eligibility criteria but enhances the loan sanctioning process.
Key Points / Main Content:
* **New Credit Assessment Model Details:**
* PSBs will use in-house capabilities to assess MSMEs for credit, based on digital footprint scoring.
* The model uses digitally fetched data for automated MSME loan appraisal, applying objective decision-making for both existing and new borrowers.
* Digital footprints include PAN authentication, mobile/email verification, GST data via API, bank statement analysis, ITR verification, credit bureau data, and fraud checks.
* The model is live with all banks, using varying loan amount thresholds.
* The traditional manual methods rely on physical documents.
* **Eligibility Criteria:**
* The new model doesn't fundamentally change basic MSME loan eligibility criteria.
* It simplifies the loan sanctioning process and provides a more standardized approach using digital data.
* **MSME Loan Approvals:**
* Between April 1 and July 15, 2025, PSBs sanctioned 98,995 MSME loan applications under the new model.
* **Processing Time:**
* Loan decisions are made within a maximum of one day, significantly reducing turnaround time.
* Benefits for MSMEs include online application submission, reduced paperwork, instant in-principle sanction, seamless processing, and credit decisions based on objective data.
* **Accountability and Risk Reduction:**
* Credit decisions are based on objective data, transactional behavior, and credit history.
* The digital process reduces subjectivity, fraudulent submissions, and errors, enabling faster and more transparent creditworthiness assessments.
* Business Rule Engines (BREs) will capture risks as per the banks' credit risk management policies.
Impact Analysis
* **Public Sector Banks (PSBs):**
* Impact: PSBs are required to develop and implement the new digital credit assessment model, shifting from reliance on external assessments to in-house capabilities based on digital footprints.
* Action Required: PSBs need to integrate the new model into their systems, train staff on its usage, and ensure compliance with its guidelines.
* **Micro, Small, and Medium Enterprises (MSMEs):**
* Impact: MSMEs will experience a simplified and faster loan application process with reduced paperwork and branch visits. Credit decisions will be based on objective data.
* Action Required: MSMEs should prepare to provide digital data and ensure accurate digital footprints for assessment under the new model.
Key Entities Referenced
Micro, Small and Medium Enterprises: A category of businesses defined by size, used to determine eligibility for government support and regulation (MSMEs).
Ministry of Finance: The Indian government ministry responsible for financial matters.
Public sector banks: Banks in India that are owned (majority stake) by the government (PSBs).
Union Budget 202425: The annual financial statement presented to the Parliament of India.
New Credit Assessment Model for MSMEs: A digital system for evaluating MSME loan applications, launched by the government.
National Securities Depository Limited: An Indian central securities depository (NSDL).
Credit Information Companies: Companies that collect and provide credit information on individuals and businesses (CICs).
SHRI PANKAJ CHAUDHARY: Minister of State in the Ministry of Finance
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF FINANCIAL SERVICES
LOK SABHA
UNSTARRED QUESTION NO. 1324
ANSWERED ON MONDAY, 28th JULY, 2025/ 6 SRAVANA 1947 (SAKA)
NEW DIGITAL CREDIT ASSESSMENT MODEL FOR MSMES
1324. SHRI BASTIPATI NAGARAJU:
Will the Minister of FINANCE be pleased to state:
(a) whether the Government has recently launched a new digital credit assessment model for Micro,
Small and Medium Enterprises (MSMEs) and if so, the details thereof, including its basic
mechanism, methodology and the way by which it differs from the traditional/manual loan evaluation
mechanisms used by banks and Financial Institutions (FIs);
(b) whether the new model introduces any changes in eligibility criteria for MSME loans, such as
inclusion or removal of existing eligibility criteria and if so, the details thereof;
(c) the number of MSMEs who have been approved for eligibility under the new assessment model;
(d) the estimated improvement in processing and turnaround time achieved with the new model
compared to the earlier system; and
(e) the steps taken by the Government to ensure accountability and reduce the risk of default,
especially in view of the removal of physical collateral requirements for loans granted under this
system?
ANSWER
MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SHRI PANKAJ CHAUDHARY)
(a) 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. 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.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
******