On March 6, 2025, during a post-budget interaction in Visakhapatnam, Union Finance Minister Smt. Nirmala Sitharaman and Minister of State for Finance Shri Pankaj Chaudhary unveiled a new Credit Assessment Model tailored for Micro, Small, and Medium Enterprises (MSMEs). This initiative, announced in the Union Budget 2024-25, empowers public sector banks (PSBs) to develop in-house capabilities for MSME credit assessments, moving away from reliance on external evaluations. The model leverages digitally sourced and verifiable data to automate loan appraisals, enhancing efficiency and accuracy.

Key features of the model include:

• Digital Data Integration: Utilizes various digital footprints such as PAN authentication via NSDL, mobile and email verification through OTP, GST data retrieval via service providers, bank statement analysis using account aggregators, ITR uploads and verification, API-enabled access to commercial and consumer credit bureaus, and fraud checks through platforms like Hunter.
• Benefits to MSMEs: Allows online application submissions from any location, reduces paperwork and branch visits, provides instant in-principle sanctions digitally, ensures seamless processing of credit proposals, offers end-to-end straight-through processing (STP), shortens turnaround time (TAT), bases credit decisions on objective data, transactional behavior, and credit history, and eliminates the need for physical collateral for loans covered under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

This model marks a significant shift from traditional credit assessments based solely on assets or turnover, encompassing MSMEs without formal accounting systems. It aligns with broader efforts to digitize banking services, similar to initiatives like the Unified Payments Interface (UPI), and is expected to transform the lending landscape for small and rural borrowers.