Loan Threshold for MSMEs Under the Digital Footprint Model Raised to ₹10 Crore

The Indian government has urged public sector banks (PSBs) to offer loans up to ₹10 crore to MSMEs. This will accelerate seamless credit flow to small and medium enterprises.

The government launched a digital footprint-based credit assessment model for MSMSE on March 6. Under this, it is encouraging banks to offer high-value loans MSMEs. This is a notable shift away from small-size loans. For instance, the current loan limit is ₹25 lakh to ₹5 crore.

How PSBs Lend to MSMEs? 

The State Bank of India (SBI) has historically lent the most to MSMEs. As per various news reports, it lends nearly ₹5 crore to MSMEs annually.

However, this is sharply different from MSME lending by other banks. On average, other PSBs process ₹25 lakh to ₹2 crore loans for small and medium enterprises. Under the new initiative, the Indian government aims to bolster MSME growth to drive overall exports. Lendings will be based on the digital footprint of the MSME.

Monitoring and Future Plans

The Indian government has not enforced any targets for increasing MSME lending under the scheme. This is because its systems need some time to stabilise. However, it will continue to monitor MSME loan percentages of PSBs. Government officials agree that some challenges persist. However, they will be worked upon gradually.

Addressing Partnership Account Issues

One of the several issues encountered by MSMEs is difficulties in accessing partnership account data. While proprietor accounts allow for efficient credit settlement, banks are not able to analyse partnership accounts carefully. This is because proprietor accounts are owned by one individual, while partnership accounts are owned by 2 or more people.

Various public sector banks have requested RBI to create a solution. This will enhance MSME lending as a percentage of their loan amount.

Benefits of the Digital Model

The digital footprint-based credit assessment model is a notable enhancement. It surpasses traditional asset or turnover-based assessments. It covers MSMEs that do not have formal accounting systems. As of now, the present MSME credit gap ranges from ₹15 lakh crore to ₹45 lakh crore.

Conclusion

The government wants to increase its export competitiveness. It aims to expand digital MSME lending to streamline credit flow. By addressing issues in partnership accounts and encouraging banks to lend to MSMEs, it aims to boost economic growth and international export capabilities.

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