Govt Pushes Banks To Raise MSME Loan Limits Under Digital Lending Model

New Delhi, May 23 (KNN) Encouraged by digital-footprint-based lending by public sector banks (PSBs) surpassing Rs 1 lakh crore in 2025-26, the government is urging lenders to increase loan ticket sizes under the model to further accelerate credit flow to micro, small and medium enterprises (MSMEs) in FY27.

The digital lending framework, announced in the Union Budget 2024-25, enables PSBs to assess MSME borrowers using digital footprints such as PAN details, GST records, income tax filings, electricity bills and transaction histories, offering an alternative to traditional credit assessment methods based on assets or turnover.

Loan Limits Vary as Banks Scale Up Digital Credit Models 

Loan limits under the model currently vary across banks. The State Bank of India offers digital-footprint-based loans of up to Rs 5 crore, while Punjab National Bank extends loans up to Rs 10 crore. Several smaller PSBs have loan ceilings of around Rs 25 lakh.

According to officials, the government now wants banks to enhance these thresholds as confidence in the model grows and credit assessment systems become more robust, reported Financial Express.

SBI, which introduced digital-footprint-based lending in January 2025, has witnessed strong growth in MSME financing. The bank recorded nearly 28 percent year-on-year growth in MSME credit during FY26, significantly higher than the aggregate 18 percent growth reported across all PSBs.

Stronger Bank Balance Sheets Drive Expansion in MSME Credit 

Officials noted that PSBs are increasingly strengthening their position in the MSME lending segment compared with private sector banks, aided by technology-driven underwriting and faster loan processing.

Banks including SBI and PNB are currently evaluating proposals to raise loan ticket sizes in line with their risk management frameworks and business strategies.

The move also comes amid a sharp improvement in asset quality across public sector banks. With non-performing assets (NPAs) continuing to decline, lenders are being encouraged to expand credit access for businesses and support their working capital and growth requirements.

PSBs reported their lowest-ever bad loan levels in FY26. As of March 31, 2026, the gross NPA ratio had declined to 1.93 percent, while the net NPA ratio fell to a historic low of 0.39 percent.

The improved financial health of banks, combined with the success of digital-footprint-based lending, is expected to support broader credit availability for MSMEs, a sector that plays a crucial role in employment generation and economic growth.

(KNN Bureau)