Credit and finance for MSMEs: The Reserve Bank of India (RBI) may enable end-to-end digitalisation of loans to SMEs in 2023 along with complete digitalisation of Kisan Credit Card (KCC)-based loans depending on the learnings from the ongoing pilot project of digitised KCC lending, according to the central bank governor Shaktikanta Das. Addressing the FICCI’s banking conference FIBAC 2022 on Wednesday, Das said the central bank hopes to launch digitised KCC and SME loans sometime during the calendar year 2023.
“Based on the learnings and experience of the end-to-end digitised KCC loans, our endeavour would be to launch it in a full-scale manner not only for farmer loans but also for SME loans. We are working closely with our banking partners (for the pilot project) and it will be extended in due course to all banks. Currently, it is being done by two banks while two more banks are about to be onboarded shortly,” Das added.
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Testing of digitised KCC loans, which focuses on the digitalisation of rural finance in India, began in September this year in select districts of Tamil Nadu and Madhya Pradesh with the Union Bank of India and Federal Bank.
Importantly, the central bank in a statement announcing the launch of the pilot project in September noted that the process for getting credit in rural areas by small businesses, ancillary industries and farmers is not very smooth. It requires the customer to visit a bank branch in-person along with the proof of land ownership and other documents and sometimes, the customer may be required to visit the bank branch multiple times, the RBI said. As a result, the Turn Around Time (TAT) from loan application to disbursement has also been rather high, ranging from two to four weeks.
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Hence, end-to-end digitalisation of loans to farmers and likewise for SME loans in rural areas is expected to play a pivotal role in facilitating credit flow to the unserved and underserved rural population by making the credit process faster and more efficient, according to RBI. “When fully implemented, this is expected to transform the rural credit delivery system of the country.”
According to the MSME Ministry’s FY22 annual report, 3.24 crore MSMEs out of the total 6.33 crore in the country were based in rural areas providing employment to 4.97 crore people while 3.09 crore MSMEs with 6.12 crore jobs were based in urban areas. As of September 2022, the gross bank credit to MSMEs in India increased by 27 per cent to Rs 18.55 lakh crore from Rs 14.61 lakh crore in September 2021, according to the RBI data on sectoral deployment.
