Public sector banks are developing new loan products up to ₹1 lakh for street vendors to help them build credit histories and transition to larger Mudra loans. According to reports from The Economic Times, banks are drafting a model scheme with relaxed eligibility norms and simplified credit appraisal to enable vendors to scale their businesses. A government official explained that while micro-credit is available, there was a gap in tailor-made products for this segment, leading to impediments in transitioning to bigger loans. As reported by The Economic Times, the government has now directed banks to bridge this gap through a structured loan scheme to help vendors access formal credit.
The current PM SVANidhi scheme offers loans up to ₹50,000 and has sanctioned more than 10.5 million loans amounting to over ₹17,800 crore since its launch in June 2020. As reported by The Economic Times, the scheme has facilitated access to formal credit for street vendors, enabling them to expand their livelihoods. A bank executive confirmed that lenders are working on a draft scheme to help borrowers under PM SVANidhi graduate to Pradhan Mantri Mudra Yojana (PMMY). According to The Economic Times, banks are developing a model scheme which will ensure these borrowers can avail loans up to ₹1 lakh and further build up their credit history.
The new product will help first-time borrowers to scale up their credit profiles, with timely repayments making them eligible for higher-category loans under the Mudra scheme. According to The Economic Times, borrowers currently need a satisfactory credit track record to avail Mudra loans, and this new product will bridge the gap for those without established credit histories. The scheme aims to enable vendors to build credit histories and transition to larger loan sizes. A bank executive noted that there need to be bridge loans based on relaxed assessment parameters which will help these borrowers take up higher-value loans.
The government has directed banks to scale up lending based on the Grameen Credit Score (GCS) and its complete integration with the JanSamarth Portal. As reported by The Economic Times, under Phase I, GCS has been developed using existing data attributes such as rural and agriculture-related borrowings available with credit information companies. The addition of more parameters is expected to result in improved access to formal credit for first-time borrowers.
According to a recent report by CareEdge Ratings, non-food bank credit growth remained strong at 15.8% year-on-year in April, primarily supported by resilient retail demand, micro, small and medium enterprises (MSMEs), strong credit flows to non-banking financial companies and improving infrastructure-related financing. The report noted that MSMEs continued benefiting from sustained credit demand, attractive risk-adjusted returns for lenders, and ongoing policy support measures.
