MSMEs with a good CIBIL MSME Rank (CMR) can avail loans at lower rate of interest from Bank of Baroda

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In a pioneering move on risk-based pricing of MSME loans, Bank of Baroda has announced an offering of lower interest rates on such loans to MSMEs who have a good CIBIL MSME Rank (CMR). The CMR uses machine learning algorithms to predict the probability of an MSME becoming NPA in the next 12 months.

CMR provides a rank to the MSME based on its credit history data on a scale of 1 to 10, CMR 1 being the best possible rank for the least risky MSMEs and CMR 10 being the riskiest rank for MSMEs. The lower the CMR, the lower the risk of NPA associated with the MSME. By adopting risk-based pricing of MSME loans based on CMR, Bank of Baroda will now be able to make access to credit cheaper for well performing MSMEs in the country.

Speaking about this move, Smt. Papia Sengupta, Executive Director, Bank of Baroda said, “Bank of Baroda is credited with pioneering innovation and technology to drive business growth and credit penetration.

We were amongst the first banks in India to offer risk-based pricing on home loans based on CIBIL Score and now we are the pioneers in offering risk-based pricing on MSME loans based on CIBIL MSME Rank.

Based on this policy, MSMEs with lower CMR can expect loan starting at ROI of 1 year MCLR +0.05% from Bank of Baroda. CMR based pricing will help us manage risks better and also enable greater credit opportunities for deserving MSMEs.”

The latest edition of the TransUnion CIBIL- SIDBI MSME Pulse report shows that that the total on-balance sheet commercial lending exposure in India stood at ₹ 54.2 lakh crores, as of March 2018 with Micro and SME segment constituting ₹ 12.6 lakh crores, which contributes to ~23% of commercial credit outstanding.

The MSME segment also experienced strong growth of over 16% Y-o-Y for the year ended 31st Mar 2018. An analysis from TransUnion CIBIL’s commercial bureau shows that there are 21 lac MSMEs with CMR of 6 or lower, which are eligible to benefit from this interest rate policy.

The Chart 1 below has the distribution of all the MSMEs in the country distributed across CIBIL MSME Rank. The 21 lac MSMEs with CMR in the range of 1 to 6 constitute over 80% of all the MSMEs in the country.

CIBIL MSME Rank at a glance
  • CMR is a credit risk rank for MSMEs that predicts the probability of an MSME becoming NPA in the next 12 months

  • MR is applicable to MSMEs with aggregate commercial borrowings between INR 10 Lakhs and INR 10 Crores.

  • CMR is trained on over 7 years of through-the-cycle (TTC) credit history data using machine learning algorithms

  • CMR is calculated based on 24 months of the MSME’s credit history on the bureau
  • CMR range: CMR1 to CMR10; CMR1 denoting the lowest credit risk and probability of NPA and CMR10 denoting highest risk and probability of NPA.

  • Currently around 27 lacs MSMEs are eligible to be ranked on CMR.Benefits of CMR for banks and credit institutions:

  • Objective lending decisions for MSME lending
  • Faster underwriting process by deciding a threshold investment rank.
  • Standardize the risk management process
  • Build and implement effective business and risk strategies.
  • Provide risk-based pricing for MSME loans

Image showing : Distribution of MSMEs in India based on CIBIL MSME Rank (CMR

Driving access to finance for MSMEs while controlling the quality of portfolios is the topmost priority for banks and credit institutions. Speaking about this move by Bank of Baroda, the Managing Director and CEO of TransUnion CIBIL- Mr. Satish Pillai said, “Offering risk-based pricing on MSME loans is a very progressive move by Bank of Baroda and we are confident that CMR-based pricing will not only help in risk control and better asset quality, but also drive credit penetration for many more deserving MSMEs thus fueling business growth. CMR helps resolve information asymmetry and contributes towards enabling objective credit decisions while ensuring a wider and faster access to funds for MSMEs”.

About TransUnion CIBIL

TransUnion CIBIL is India’s leading credit information company and maintains one of the largest repositories of credit information globally. We have over 3000 members–including all leading banks, financial institutions, non-banking financial companies and housing finance companies–and maintain more than 1000 million credit records of individuals and businesses.

Our mission is to create information solutions that enable businesses to grow and give consumers faster, cheaper access to credit and other services. We create value for our members by helping them manage risk and devise appropriate lending strategies to reduce costs and increase portfolio profitability. With comprehensive, reliable information on consumer and commercial borrowers, they are able to make sound credit decisions about individuals and businesses. Through the power of information, TransUnion CIBIL is working to support our members drive credit penetration and financial inclusion for building a stronger economy.