Rs 6.12 Lakh Crore Target for FY26, Rs 7 Lakh Crore for FY27
Finance Minister Nirmala Sitharaman, speaking at the SBI Banking and Economics Conclave 2024, urged banks to prioritize lending to Micro, Small, and Medium Enterprises (MSMEs). She set ambitious targets of Rs 6.12 lakh crore for FY 2025-26 and Rs 7 lakh crore for FY 2026-27, emphasizing the need to view MSMEs as a sector full of opportunities rather than risks.
For the current financial year, Sitharaman outlined an additional MSME lending target of Rs 1.54 lakh crore, supplementing the estimated Rs 4.21 lakh crore to be lent under the “business as usual” (BAU) model.
Priority Sector Lending Framework
The Reserve Bank of India mandates that domestic commercial banks, foreign banks with over 20 branches, regional rural banks, and small finance banks allocate 7.5% of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure (CEOBE), whichever is higher, to micro-enterprises under the priority sector lending framework.
Shifting Focus from Collateral to Cash Flow-Based Lending
Traditionally, banks have relied on collateral-based lending models, which do not align well with MSMEs’ unique financial structures. Sitharaman advocated for cash flow-based lending as a transformative solution to address the working capital needs of MSMEs.
Strengthening Credit Assessment Models
Credit Guarantee Scheme
Sitharaman also spotlighted the Rs 100 crore credit guarantee scheme for manufacturing units announced in this year’s budget. The scheme offers loans without collateral or third-party guarantees, requiring borrowers to pay upfront and annual guarantee fees on the reducing loan balance.
