Lok Sabha Question No. 1324 (UNSTARRED), answered on 2025-07-28
Subject: New Digital Credit Assessment Model for MSMEs
Ministry: FINANCE
Asked by: Shri Bastipati Nagaraju

## GOVERNMENT OF INDIA

## MINISTRY OF FINANCE

## DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO. 1324

ANSWERED ON MONDAY, 28 th  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 6 th 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  1 st April  and  15 th 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.

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