SBI, Union Bank of India and Other PSBs Sanction ₹28,724 Crore MSME Loans Under New Digital Model

As per Business Standard report, Public-sector banks (PSBs) are seeing encouraging early adoption of the government’s digital footprint–based credit assessment framework for MSMEs, with significant sanctions recorded in the first seven months of FY26.  

The model aims to simplify access to credit by replacing paperwork-heavy processes with technology-led evaluation. 

Digital Lending Traction at PSBs 

Between April and October FY26, PSBs processed 560,655 MSME loan applications under the new framework. Of these, 261,281 proposals were approved, resulting in sanctions of ₹28,724 crore.  

Disbursements during the period stood at ₹23,541 crore, while the remaining sanctioned amount is pending release. Around 188,999 applications remain under evaluation, pointing to a steady pipeline of demand. 

Bank-Wise Disbursment Details 

State Bank of India emerged as the largest lender by value. It received 169,888 applications, sanctioned 86,389 loans worth ₹21,290 crore and disbursed ₹16,909 crore.  

Union Bank of India recorded the highest number of applications at 192,110, approving 71,990 proposals with sanctions of ₹2,810 crore and disbursements of ₹2,700 crore. 

Other major PSBs, including Bank of Baroda, Punjab National Bank, Canara Bank and Bank of India, also reported consistent sanction and disbursement activity under the framework. 

How the Digital Assessment Works 

The credit model relies on digitally verifiable data, including GST filings, income-tax returns, bank statements accessed via account aggregators and other authenticated electronic records.  

By using transaction-level data, banks aim to speed up credit decisions, improve transparency and reduce dependence on subjective assessments or physical documentation. 

The framework was announced in the Union Budget 2024-25 and formally launched in March 2025, with PSBs instructed to build customised in-house digital lending systems for MSME borrowers. 

Rejections and Risk Profiling 

The average rejection rate across PSBs stood at around 20%, with variations across lenders based on borrower profiles and data availability.  

Banks such as Bank of Maharashtra reported lower rejection levels, while institutions including Bank of India and UCO Bank saw relatively higher ratios. 

According to a finance ministry statement issued in March 2025, the digital model offers MSMEs benefits such as online application submission, reduced paperwork, fewer branch visits, faster in-principle approvals, straight-through processing, lower turnaround time and collateral-free loans under CGTMSE coverage. 

Read More: Public Sector Banks Write Off Loans Worth ₹6.15 Lakh Crore Over 5 Years! 

Conclusion 

The early performance of the digital footprint–based credit model suggests it could meaningfully expand formal credit access for MSMEs, particularly first-time and small borrowers lacking traditional collateral or balance sheets. With a growing pipeline of applications and faster approvals driven by transaction data, the framework is gradually reshaping how public-sector banks lend to India’s MSME sector. 

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