What changed
RBI replaced the earlier SSI/ME definition with the MSMED Act 2006 classification for UCBs. Manufacturing micro enterprises now have investment in plant and machinery (original cost excluding land and building and specified items) up to Rs 25 lakh, small over Rs 25 lakh up to Rs 5 crore, and medium over Rs 5 crore up to Rs 10 crore. Service enterprises have separate equipment-based limits (original cost excluding land, building, furniture, fittings, and other items): micro up to Rs 10 lakh, small over Rs 10 lakh up to Rs 2 crore, and medium over Rs 2 crore up to Rs 5 crore.
What it means for you
UCBs must reclassify existing and new MSME borrowers under the updated investment slabs, affecting priority sector lending calculations. Lending to medium enterprises (manufacturing or services) will not count as priority sector advances. Banks need to update internal systems, loan policies, and reporting frameworks to comply with the MSMED Act definitions.
What you must do
- Adopt the MSMED Act 2006 definitions for all MSME loan classifications immediately.
- Update internal credit policies and loan origination systems to reflect new investment thresholds.
- Ensure medium enterprise loans are excluded from priority sector lending reporting.
- Train staff on revised classification criteria for manufacturing and service enterprises.
- Review existing MSME portfolios to re-categorize borrowers as per new limits.
Who it affects
Primary (Urban) Co-operative Banks, MSME borrowers of UCBs, Priority sector lending teams, Credit policy and risk management departments
What are the new investment limits for manufacturing MSMEs under this circular?
Micro enterprises: investment in plant and machinery (original cost excluding land and building and items specified by Ministry notification) up to Rs 25 lakh. Small enterprises: over Rs 25 lakh up to Rs 5 crore. Medium enterprises: over Rs 5 crore up to Rs 10 crore.
Does lending to medium enterprises count as priority sector?
No, the circular explicitly states that bank lending to medium enterprises will not be included for reckoning under priority sector.
Are service enterprises covered under the new definition?
Yes, service enterprises are classified based on investment in equipment (original cost excluding land, building, furniture, fittings, and other items not directly related to service): micro up to Rs 10 lakh, small over Rs 10 lakh up to Rs 2 crore, and medium over Rs 2 crore up to Rs 5 crore.