What changed
Earlier, banks were required to club investments of two or more enterprises under the same ownership to determine SSI/MSME status. The Government of India rescinded this clubbing provision via Notification S.O.563(E) dated February 27, 2009, as the MSMED Act, 2006 does not provide for such clubbing. RBI, in its circular dated December 6, 2010, advised banks to follow the new guidelines and accord wide publicity.
What it means for you
Banks must no longer aggregate investments of multiple units owned by the same person/company when classifying them as micro, small, or medium enterprises. Each unit will be assessed independently based on its own investment in plant and machinery. This simplifies MSME lending and reduces compliance burden for borrowers with multiple ventures.
What you must do
- Issue instructions to all branches and controlling offices to stop clubbing investments for MSME classification, as per RBI circular dated December 6, 2010.
- Update internal MSME classification policies and loan application forms to reflect independent unit assessment.
- Communicate the change to existing MSME borrowers with multiple units to ensure correct classification.
- Train credit officers on the revised guidelines to avoid misclassification and regulatory non-compliance.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), MSME borrowers with multiple enterprises under same ownership, Bank credit officers handling MSME loan applications
Does this circular apply to all MSMEs or only to those classified as SSI earlier?
It applies to all micro, small, and medium enterprises as defined under the MSMED Act, 2006. The earlier clubbing rule was for SSI classification; now each unit is assessed independently.
What is the effective date for stopping clubbing of investments?
The Government rescinded the clubbing provision via Notification S.O.563(E) dated February 27, 2009. RBI's circular of December 6, 2010 advises banks to implement this immediately.
Will existing loans be affected by this change?
Existing loans should be reviewed to ensure correct MSME classification. If a unit was previously classified incorrectly due to clubbing, banks may need to reclassify it and adjust any related benefits or reporting.