Mumbai: Banks traditionally focused on providing corporate credit, home loans and loans against property will now need to develop new capabilities to lend to small businesses without requiring collateral or credit history.
The finance minister has asked public sector banks (PSBs) to develop internal models for assessing MSME creditworthiness based on digital footprint scoring rather than traditional asset or turnover criteria or relying on external agencies.
The budget includes several proposals to enhance credit access for micro, small, and medium enterprises (MSMEs). One proposal introduces a new credit guarantee scheme that facilitates term loans for purchasing machinery and equipment without requiring collateral or third-party guarantees.
Furthermore, credit support will be available to MSMEs facing financal stress. A government-promoted fund guarantee will back these loans. Moreover, the threshold limit for onboarding under the Trade Receivables Discounting System (TReDS) platform, a financing platform based on outstanding invoices, will be reduced from Rs 500 crore to Rs 250 crore.
For banks, these proposals mean improving their assessment and financing capabilities. According to Debadatta Chand, MD & CEO, Bank of Baroda, the measures supporting MSMEs are crucial not just for GDP growth but also for employment generation.
“SIDBI’s expansion to cover 168 major MSME clusters will broaden credit access and strengthen financial inclusion. Overall, these strategic measures are expected to drive substantial MSME growth, spur innovation, and fortify India’s economic resilience,” said Rajan Pental, ED, Yes Bank.
