RBI Guidelines and Rules for MSME
The Reserve Bank of India (RBI) has issued comprehensive guidelines and rules for lending and supporting the Micro, Small, and Medium Enterprises (MSME) sector.
1. Priority Sector Lending Targets
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Banks must allocate a specific portion of their lending to the MSME sector.
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For micro enterprises, banks are required to achieve a sub-target of 7.5% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher.
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Banks are also advised to achieve:
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20% year-on-year growth in credit to micro and small enterprises.
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10% annual growth in the number of micro enterprise accounts.
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60% of total lending to MSE sector (as of the previous year’s corresponding quarter) to micro enterprises.
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2. Collateral Requirements
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No collateral security is required for loans up to ₹10 lakh for units in the MSE sector.
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Banks may extend the collateral-free loan limit up to ₹25 lakh for units with good track records and financial positions, subject to internal approvals.
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Banks are encouraged to use the Credit Guarantee Scheme for such loans.
3. Composite Loans
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Banks can sanction a composite loan limit of ₹1 crore to MSME entrepreneurs, covering both working capital and term loan needs through a single window.
4. Loan Application Process
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Banks must issue an acknowledgement for all MSME loan applications received, ensuring transparency and tracking.
5. Revival and Rehabilitation Framework
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For MSME units with loan limits up to ₹25 crore, a structured framework exists for revival and rehabilitation.
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Banks must identify early signs of stress in MSME accounts by classifying them under Special Mention Account (SMA) categories before they become Non-Performing Assets (NPAs).
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MSME borrowers can voluntarily initiate proceedings under this framework.
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A committee approach is adopted for corrective action, with fixed timelines for decisions.
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6. Debt Restructuring Mechanism
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RBI has a debt restructuring mechanism for viable or potentially viable MSMEs, applicable to:
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All non-corporate MSMEs, regardless of dues.
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Corporate MSMEs with banking from a single bank, regardless of dues.
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Corporate MSMEs with total outstanding up to ₹10 crore under multiple/consortium banking.
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7. Credit Linked Capital Subsidy Scheme (CLSS)
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For technology upgradation, MSMEs can avail loans up to ₹1 crore with a 15% subsidy under the CLSS, implemented through SIDBI and NABARD.
8. New Definition of MSMEs
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The RBI has adopted the updated definitions for micro, small, and medium enterprises as per government notifications, which consider both investment and turnover criteria.
These guidelines are periodically updated by RBI to enhance credit flow, ensure timely support, and promote the growth and sustainability of MSMEs in India.
