What changed
RBI issued a clarification on June 15, 2010, confirming that loans to MSEs (manufacturing and services) are eligible for priority sector classification if they satisfy the MSMED Act 2006 definition, irrespective of whether the finance is for export or domestic activities. It also reiterated that all loans to agriculture and allied activities qualify as priority sector, with export credit to these sectors requiring separate reporting in Statement II.
What it means for you
Urban Co-operative Banks can now confidently classify all MSE loans (export or domestic) as priority sector, provided the borrower meets MSMED Act criteria. This expands the priority sector lending pool for UCBs and simplifies compliance. Separate reporting of export credit to MSEs and agriculture in Statement II is mandatory for accurate regulatory submissions.
What you must do
- Ensure all MSE loans (export/domestic) are classified as priority sector only if the borrower meets MSMED Act 2006 definition.
- Report export credit to MSEs separately under 'Export Credit to Micro and Small Enterprises Sector' in Statement II.
- Report export credit to agriculture and allied activities separately under 'Export Credit to Agriculture Sector' in Statement II.
- Update internal priority sector lending policies and reporting templates to reflect this clarification.
Who it affects
Primary (Urban) Co-operative Banks, MSE borrowers (manufacturing and services), Agriculture and allied activity borrowers
Does this circular change the priority sector eligibility for MSE loans that are not for exports?
No. It clarifies that MSE loans are eligible for priority sector classification whether for export or domestic activities, as long as the borrower meets the MSMED Act 2006 definition.
How should we report export credit to MSEs and agriculture in our returns?
Report export credit to MSEs separately under 'Export Credit to Micro and Small Enterprises Sector' and export credit to agriculture under 'Export Credit to Agriculture Sector' in Statement II of the priority sector returns.