What changed
RBI issued a Master Circular consolidating all existing MSME lending instructions up to June 30, 2009. The circular formally adopts the MSMED Act 2006 definitions, which now include service enterprises and medium enterprises, with specific investment limits for plant and machinery (manufacturing) and equipment (services).
What it means for you
Banks must use the MSMED Act 2006 definitions for classifying MSME borrowers, which expands the scope to service enterprises and medium enterprises. Lending to medium enterprises is excluded from priority sector reckoning. The circular ensures uniform application of guidelines across all scheduled commercial banks, including RRBs and LABs.
What you must do
- Update internal MSME classification systems to reflect the MSMED Act 2006 investment thresholds for manufacturing and services.
- Ensure that lending to medium enterprises is not counted under priority sector targets.
- Train credit officers on the new definitions, especially for service enterprises and KVI sector treatment.
- Review existing MSME loan portfolios to reclassify borrowers as per the updated definitions.
Who it affects
All scheduled commercial banks, Regional Rural Banks (RRBs), Local Area Banks (LABs), MSME borrowers (including service enterprises and medium enterprises)
Are service enterprises included in priority sector lending?
Yes, micro and small service enterprises are included in priority sector lending, but medium service enterprises (investment in equipment above Rs 2 crore up to Rs 5 crore) are excluded from priority sector reckoning.