What changed
The earlier definition of small and medium enterprises (based on SSI limits and a 2005 circular) has been replaced by the MSMED Act 2006. New investment thresholds for manufacturing: micro up to Rs. 25 lakh, small Rs. 25 lakh to Rs. 5 crore, medium Rs. 5 crore to Rs. 10 crore. For services: micro up to Rs. 10 lakh, small Rs. 10 lakh to Rs. 2 crore, medium Rs. 2 crore to Rs. 5 crore.
What it means for you
Banks must implement the new MSME definitions with immediate effect, impacting priority sector lending targets and reporting. Lending to medium enterprises will not be included for reckoning under the priority sector, requiring adjustments in portfolio tracking. The circular also clarifies that original cost of plant and machinery excludes land, building, and specified items, affecting how banks assess eligibility.
What you must do
- Update internal systems and loan origination processes to reflect the new MSME definitions with immediate effect.
- Implement the revised investment thresholds for manufacturing and services for new and existing borrowers.
- Ensure credit reporting and priority sector lending submissions align with the MSMED Act 2006 definitions.
- Train credit officers on the exclusion of land, building, and specified items from investment calculations.
Who it affects
All scheduled commercial banks, Regional Rural Banks, Local Area Banks, MSME lending departments, Priority sector monitoring teams
What is the key change in the definition of medium enterprises?
Under the MSMED Act 2006, a medium manufacturing enterprise now has investment in plant and machinery between Rs. 5 crore and Rs. 10 crore, replacing the earlier definition of up to Rs. 10 crore for units exceeding SSI limits.
Does the new definition apply to service enterprises?
Yes, service enterprises are now classified based on investment in equipment: micro up to Rs. 10 lakh, small up to Rs. 2 crore, and medium up to Rs. 5 crore.
How should banks treat lending to medium enterprises after this circular?
The circular states that bank lending to medium enterprises will not be included for the purpose of reckoning under the priority sector, so banks must review their priority sector reporting to exclude such exposures where applicable.