The move would be beneficial for individuals applying for home loans whose creditworthiness is not easy to determine.
After A New credit assessment model for MSMEs announced in the Budget, the Finance Ministry is now developing a similar product to provide home loans based on the digital footprints of an individual, said Financial Services Secretary Vivek Joshi.
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The move would be beneficial for individuals applying for home loans whose creditworthiness is not easy to determine.
In Budget 2024-25, Finance Minister Nirmala Sitharaman announced that public sector banks (PSBs) will build their in-house capability to assess MSMEs (Micro, Small & Medium Enterprises) for credit, instead of relying on external assessment. Under the new model, banks will do credit assessment of an MSME based on its digital footprints and not on their balance sheets.
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“Similarly, we are also developing a product for the housing sector. Banks have already worked on the model. As of now, home loans from banks are available only to those who are salaried or are a tax returnee. For those who don’t have it (required documents), banks can lend to them (under the new model) seeing their digital footprints,” Joshi told The Indian Express in an interview.
Under the new model, which is likely to be developed within a quarter, banks will consider consumption or spending patterns of individuals while making their credit assessment, he added.
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On the new credit assessment model for MSMEs, Joshi said at present banks look at an MSME’s balance sheets and account statements before granting them loans, and the government now plans to change this.
“Not every MSME can produce balance sheets. Banks treat MSMEs similar to corporates. The guidelines for inspection are of similar type (as for corporates),” he said.
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Joshi said for MSMEs which are medium sized, it is easier to comply with the loan requirements of banks, but for smaller businesses, there is no proper balance sheet and hence they find it difficult to get loans.
“So, we will develop a model for MSMEs on the basis of digital footprint. Maybe that business has employed ten people and would be paying salaries to them, paying their EPF (Employees’ Provident Fund) contribution. Therefore, he is creating data, and the banks would be able to assess his creditworthiness (with that data),” Joshi said.
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He further explained with an example, stating that suppose someone has a shop selling chai and samosa, the bank knows the shop is doing well, but the norms don’t permit them to provide credit. “The business owner can then show his or her bank account, or electricity bill, which will then make it convenient for the bank to give a loan of say, Rs 5 lakh or Rs 10 lakh,” he said, adding that this will help in providing loans to more number of MSMEs.
Joshi said banks even ask for an external credit rating from MSMEs for granting loans below a threshold limit, which puts financial burden on MSMEs.
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“We are discouraging that (external credit rating requirement). And for this, we are telling banks to do their own internal rating. Banks do it even now also, for instance, if you take external ratings, it is not like the loan would be given on that basis only. They will rate you again (internally),” Joshi stated.
