Big Shift In Evaluating Creditworthiness of MSMEs Via Digital Footprints: Pental

Reduction of the TReDS onboarding threshold will significantly improve MSME liquidity

Rajan Pental, Executive Director, YES BANK

FinTech BizNews Service

Mumbai, July 23, 2024: The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman tabled the union budget 2024-2025 in Parliament today.

One of the Nine Budget Priorities in pursuit of ‘Viksit Bharat’ include Manufacturing & Services:

Credit Guarantee Scheme for MSMEs in the Manufacturing Sector

• A credit guarantee scheme without collateral or third-party guarantee in term loans to MSMEs for purchase of machinery and equipment.

Credit Support to MSMEs during Stress Period

• New mechanism to facilitate continuation of bank credit to MSMEs during their stress period.

Mudra Loans

• The limit of Mudra loans under ‘Tarun’ category to be enhanced to Rs20 lakh from Rs10 lakh for those who have successfully repaid previous loans.

Enhanced scope for mandatory onboarding in TReDS

•  Turnover threshold of buyers for mandatory onboarding on the TReDS platform to be reduced from Rs500 crore to Rs250 crore..

MSME Units for Food Irradiation, Quality & Safety Testing

• Financial support to set up 50 multi-product food irradiation units in the MSME sector .

E-Commerce Export Hubs

• E-Commerce Export Hubs to be set up under public-private-partnership (PPP) mode for MSMEs and traditional artisans to sell their products in international markets.

Rajan Pental, Executive Director, YES BANK, likes a number of provisions: "We welcome the significant measures introduced in the Union Budget, by the Finance Minister, to bolster MSMEs and the manufacturing sector, enhancing their growth prospects and global competitiveness. The launch of the Credit Guarantee Scheme, which provides term loans up to Rs100 crore without requiring collateral, will notably reduce risk for banks and expand their lending opportunities, facilitating greater investment in essential machinery and equipment.

The new credit assessment model, which leverages digital footprints, represents a transformative shift in evaluating MSME creditworthiness. This innovation will streamline the credit process and extend support to MSMEs that lack formal accounting systems, making credit access more inclusive and efficient. Additionally, the enhancement of Mudra loan limits to Rs20 lakh and the provision for continued credit support during periods of stress are designed to stabilize borrowers and reduce the likelihood of non-performing assets. These measures will help maintain operational continuity and foster growth.

The reduction of the TReDS onboarding threshold to Rs250 crore will significantly improve MSME liquidity by facilitating the conversion of trade receivables into cash. 

Meanwhile, 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. For the banking sector, these changes present valuable opportunities for increased engagement with MSMEs, while mitigating risk and enhancing financial stability."