India’s Finance Minister Nirmala Sitharaman has issued a call to action for state-run banks, urging them to ramp up their deposit mobilization drives and promptly implement budget measures aimed at improving credit access for small businesses and individuals.
During a performance review meeting with public sector bank chiefs, Sitharaman acknowledged that credit growth has been on the rise, but stressed the importance of bolstering deposit mobilization to ensure the sustainability of this growth. This emphasis underscores the critical role of deposits in fueling lending activities.
The meeting, which also included the participation of Vivek Joshi, secretary in the department of financial services, and Nagaraju, secretary-designate, focused on facilitating credit accessibility.
Sitharaman highlighted the government’s consistent efforts to empower citizens at the bottom of the pyramid by facilitating access to credit, thereby supporting their livelihoods and improving their lives. She instructed banks to prioritize the swift implementation of budget announcements, including the introduction of a new credit assessment model for small businesses. This model will leverage digital footprints and cash flows to provide a more comprehensive evaluation of their creditworthiness.
The budget for FY25 introduced a new credit assessment model for small businesses, empowering public sector banks to develop in-house capabilities for evaluating micro, small, and medium enterprises (MSMEs). This initiative aims to reduce reliance on external assessment processes and enhance the banks’ understanding of the creditworthiness of these businesses.
Furthermore, the government is leading the development of a novel credit assessment model based on scoring the digital footprints of MSMEs within the economy. This approach aims to leverage digital data to provide a more accurate and efficient assessment of creditworthiness.
The budget also included a significant announcement regarding Mudra loans, doubling the limit from ₹10 lakh to ₹20 lakh for entrepreneurs who have successfully repaid previous loans.
Sitharaman also directed banks to strictly adhere to the Reserve Bank of India’s guidelines regarding the timely return of security documents to customers following loan closure. This directive underscores the importance of transparent and efficient loan closure processes.
