What changed
RBI observed from the Fourth Census on MSMEs that 92% of the sector remains financially excluded. It now mandates banks to proactively offer financial literacy and consultancy support to MSE borrowers, either through dedicated branch cells or by integrating into existing Financial Literacy Centres. Banks must also train staff via customised programs to address sector-specific needs.
What it means for you
Banks must now go beyond credit disbursement and actively handhold MSE clients in areas like accounting, finance, and business planning. This increases operational costs but can improve loan quality and reduce NPAs by making borrowers more viable. It also aligns with financial inclusion goals and may lead to better credit uptake in the MSE segment.
What you must do
- Set up special cells at branches or integrate financial literacy support into existing Financial Literacy Centres for MSE clients.
- Design and implement customised training programs for bank staff to meet the specific needs of the MSE sector.
- Submit an Action Taken report to RBI by August 24, 2012.
Who it affects
All Scheduled Commercial Banks (excluding Regional Rural Banks), MSE borrowers and entrepreneurs, Bank branch staff handling MSE accounts
Why is RBI focusing on financial literacy for MSEs?
The Fourth Census on MSMEs revealed 92% financial exclusion in the sector, and studies show lack of financial literacy and operational skills are major barriers for MSE borrowers.
What specific support must banks provide?
Banks must offer financial literacy and consultancy support in areas like accounting, finance, and business planning, either through special branch cells or by integrating into Financial Literacy Centres.
Is there a deadline for compliance?
Yes, banks must submit an Action Taken report to RBI by August 24, 2012.