In a move aimed at improving credit risk assessment and promoting responsible lending, public and private sector banks across India have begun requiring partnership firms to submit detailed financial projections as part of their business loan application process.

The updated guidelines, issued in coordination with the Reserve Bank of India’s advisory framework on MSME lending, emphasize that partnership firms seeking credit facilities—including working capital loans, term loans, or overdraft limits—must provide forward-looking statements outlining expected revenues, expenditure, cash flows, and capital requirements over a specified period, typically three to five years.

Bank officials note that the measure is designed to improve transparency and ensure that credit is extended based on realistic business viability, rather than past performance alone. “Partnership firms have often relied on income tax returns and basic financials, but with increasing loan defaults in the MSME sector, lenders now need a clearer view of future business sustainability,” said an executive at a leading state-owned bank.

These projections must be supported by assumptions such as market trends, pricing strategies, production capacity, and planned investments. In sectors affected by seasonal demand or regulatory shifts—such as textiles, food processing, and logistics—banks are asking for scenario-based models and stress testing of financial plans.

While large firms and LLPs often engage professionals to prepare such documents, small and mid-sized partnership firms may need to rely on chartered accountants or external consultants. This has raised concerns among micro enterprises about increased documentation costs and financial literacy barriers.

However, financial institutions argue that the practice will benefit borrowers in the long run by encouraging sound business planning, improving creditworthiness, and reducing dependency on collateral-backed loans.

The new requirement is being rolled out in phases and is currently applicable to loan applications exceeding ₹10 lakh. It is expected to become a standard part of MSME credit processing by the end of the current fiscal year.