Public Sector Banks to Review MSME Credit Rating and Co-Lending Framework with DFS

New Delhi, Oct 25 (KNN) M Nagaraju, the newly appointed Secretary of the Department of Financial Services (DFS), will preside over his first major review meeting with the managing directors (MDs) and chief executive officers (CEOs) of public sector banks (PSBs) on November 5, according to a senior government official familiar with the development.

The meeting comes at a critical time as the government seeks to enhance the financial ecosystem, especially in lending to micro, small, and medium enterprises (MSMEs).

Nagaraju is expected to emphasise the progress on the credit rating system for MSMEs, a key reform outlined in the 2024-25 Union Budget.

The credit rating system aims to improve the transparency and efficiency of loans to MSMEs, enabling better access to credit for the sector, which plays a crucial role in employment generation and economic growth.

Another topic on the agenda will be the co-lending framework between banks and non-banking financial companies (NBFCs). This mechanism encourages PSBs and NBFCs to collaborate, leveraging the strengths of both to expand credit outreach, especially in rural and underserved areas.

The co-lending model has been gaining traction, but challenges around regulatory alignment and operational coordination are expected to be discussed during the meeting.

Nagaraju’s review follows a similar session held in June under his predecessor Vivek Joshi. During that meeting, Joshi emphasised improving asset quality, boosting loan disbursements, and addressing key regulatory challenges.

Nagaraju's focus, however, appears to be on deepening structural reforms, particularly through new credit mechanisms and partnerships between financial institutions.

The outcomes of the meeting are likely to have a significant impact on the pace of financial sector reforms and may shape upcoming policy directives for public sector lenders.

With the MSME sector being a critical component of India’s economic strategy, ensuring smooth implementation of these reforms will be essential for growth momentum, especially as the government focuses on post-pandemic economic recovery.

Officials expect that public sector banks will provide updates on their progress and challenges so far, while also receiving new directions on priority reforms.

Given the fast-evolving financial landscape, this meeting marks a pivotal moment in strengthening India’s public banking sector and its contribution to the broader economy.

(KNN Bureau)