What changed
RBI issued instructions based on the Prime Minister's High Level Task Force on MSMEs. Banks must now meet specific sub-targets for micro enterprises within MSE lending: 40% of MSE advances to micro (manufacturing) enterprises with plant & machinery up to Rs 5 lakh and micro (service) enterprises with equipment up to Rs 2 lakh, and 20% to micro (manufacturing) enterprises with plant & machinery above Rs 5 lakh and up to Rs 25 lakh and micro (service) enterprises with equipment above Rs 2 lakh and up to Rs 10 lakh. The 60% allocation to micro enterprises must be achieved in stages over three years.
What it means for you
Banks need to recalibrate their MSE lending portfolios to prioritize micro enterprises, especially the smallest ones. This will require dedicated monitoring of sub-segments and may impact branch-level credit planning. Non-compliance could attract regulatory scrutiny, so banks must align internal targets and reporting systems accordingly.
What you must do
- Set internal targets to achieve 20% year-on-year growth in MSE credit and 10% annual growth in micro enterprise accounts.
- Phase the allocation of 60% of MSE advances to micro enterprises: 50% by March 2011, 55% by March 2012, and 60% by March 2013.
- Open more MSE-focused branches in clusters and ensure each lead bank adopts at least one MSE cluster as a counselling centre.
- Submit an Action Taken Report to RBI by July 2010 on compliance with these instructions.
Who it affects
All scheduled commercial banks, MSE lending departments and branch managers, Lead banks of districts with MSE clusters
What are the specific investment limits for micro enterprises under this circular?
For micro (manufacturing) enterprises, investment in plant and machinery up to Rs 5 lakh for the first sub-target, and above Rs 5 lakh up to Rs 25 lakh for the second. For micro (service) enterprises, investment in equipment up to Rs 2 lakh and above Rs 2 lakh up to Rs 10 lakh respectively.
What happens if a bank fails to meet the phased 60% micro enterprise allocation target?
The circular does not specify penalties, but banks are expected to comply strictly. RBI may review progress through the Action Taken Report and could take supervisory action if targets are not met.
Does this circular apply to all types of MSE advances?
Yes, the targets apply to total advances to the MSE sector as defined in the Master Circular on lending to MSMEs. Both manufacturing and service enterprises are covered under the micro enterprise sub-targets.