GS3 – Economy
Context
Public Sector Banks (PSBs) in India have implemented a new digital model for credit assessment aimed at speeding up and standardising loan approvals for Micro, Small, and Medium Enterprises (MSMEs).
What are Public Sector Banks (PSBs)?
- Government holds a majority stake (more than 50%) in PSBs.
- Operate under the Ministry of Finance and are pivotal to financial inclusion, welfare implementation, and priority sector lending.
Salient Features of the Digital Credit Model
- Automated, Objective Lending:
- Manual underwriting is replaced with data-driven decisions based on digital records.
- Loans can be sanctioned within 24 hours using system-generated credit logic and scorecards.
- Business Rule Engines (BREs) are customised as per each bank’s risk appetite.
- Data-Driven Evaluation Mechanism:
- Real-time verification through PAN (via NSDL), GST data (via APIs), and bank statement analysis using the Account Aggregator system.
- Additional checks include ITR validation, credit bureau scores, mobile/email OTP authentication, and fraud risk assessments.
- Completely Paperless Process:
- End-to-end digital journey covering application, document submission, appraisal, and approval.
- Enables MSMEs in rural or remote regions to access credit without physical bank visits.
Significance of MSMEs in the Indian Economy
- Economic Contribution: Account for about 30% of India’s GDP, 45% of exports, and 38.4% of manufacturing output.
- Mass Employment: Employ over 11 crore individuals, making them the second-largest source of jobs after agriculture.
- Vast Reach: Nearly 6.4 crore MSMEs operate across India, with over 1.5 crore formally registered on the Udyam portal.