What changed
The Master Circular consolidates all existing MSME lending instructions up to June 30, 2011, into a single document. It formally adopts the MSMED Act 2006 definitions, which now include services enterprises and medium enterprises, with specific investment limits for plant/machinery (manufacturing) and equipment (services). The earlier clubbing of investments rule for classification was rescinded in 2009.
What it means for you
Banks must classify MSME loans strictly per the new investment thresholds: for manufacturing, micro up to Rs 25 lakh, small Rs 25 lakh-5 crore, medium Rs 5-10 crore; for services, micro up to Rs 10 lakh, small Rs 10 lakh-2 crore, medium Rs 2-5 crore. Lending to medium enterprises does not count as priority sector advances. The removal of clubbing allows separate classification for multiple units under same ownership.
What you must do
- Update loan classification systems to reflect MSMED Act 2006 investment thresholds for manufacturing and services sectors.
- Ensure medium enterprise advances are excluded from priority sector lending calculations.
- Train credit officers on the new definitions and the rescinded clubbing rule for multiple enterprises.
- Review existing MSME portfolios to reclassify accounts where needed based on original investment cost excluding land and building.
Who it affects
All scheduled commercial banks (excluding RRBs), MSME lending departments, Priority sector monitoring teams, Credit risk and compliance officers
What are the investment limits for a micro manufacturing enterprise under this circular?
For manufacturing, a micro enterprise is one where investment in plant and machinery does not exceed Rs 25 lakh, excluding land and building.
Does lending to medium enterprises count as priority sector advances?
No, the circular explicitly states that lending by banks to medium enterprises will not be included for reckoning advances under the priority sector.
Can I classify two units under the same owner separately as micro and small?
Yes, the earlier clubbing rule was rescinded in 2009, so each enterprise can be classified independently based on its own investment.