Revised Investment Limits for Micro Enterprise Lending (40:20 Rule)
No longer current — withdrawn, no replacement on file yet
Source: Reserve Bank of India · RBI/2012-13/354 · issued 31 Dec 2012 · ~2 min read
Quick answerRBI has revised the investment limits for micro enterprises under the 40:20 lending sub-targets, effective immediately. Manufacturing micro units now qualify for the 40% bucket with plant & machinery up to ₹10 lakh (was ₹5 lakh), and service micro units with equipment up to ₹4 lakh (was ₹2 lakh). The 20% bucket limits are also adjusted accordingly.
What changed
The investment thresholds for micro enterprises under the 40% and 20% sub-targets of MSE lending have been increased. For the 40% bucket, the plant & machinery limit for manufacturing micro units rose from ₹5 lakh to ₹10 lakh, and the equipment limit for service micro units from ₹2 lakh to ₹4 lakh. For the 20% bucket, the upper limit for manufacturing units remains ₹25 lakh, but the lower threshold moved from ₹5 lakh to ₹10 lakh; similarly, for service units, the lower threshold moved from ₹2 lakh to ₹4 lakh, with the upper limit unchanged at ₹10 lakh.
What it means for you
Banks can now classify a larger pool of micro enterprise loans under the 40% and 20% priority sector sub-targets, making it easier to meet these requirements without compromising on credit quality. This revision reflects inflation and cost increases, giving lenders more flexibility to serve slightly larger micro enterprises while still complying with priority sector norms. Banks should update their internal systems and branch guidelines to reflect the new thresholds immediately.
Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.
What banks were required to do at the time
Update internal lending policies and priority sector monitoring systems to reflect the revised investment limits for micro enterprises.
Communicate the new thresholds to all branches and controlling offices with immediate effect.
Ensure that loan applications for micro enterprises are assessed against the updated plant & machinery/equipment limits for correct classification under the 40:20 sub-targets.
Review existing micro enterprise loan portfolios to reclassify eligible accounts under the revised limits, if needed.
Acknowledge receipt of this circular to the RBI as instructed.
Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).
What are the new investment limits for the 40% sub-target?
For manufacturing micro enterprises, investment in plant & machinery up to ₹10 lakh (previously ₹5 lakh). For service micro enterprises, investment in equipment up to ₹4 lakh (previously ₹2 lakh).
What are the revised limits for the 20% sub-target?
For manufacturing micro enterprises, investment in plant & machinery above ₹10 lakh and up to ₹25 lakh (previously above ₹5 lakh and up to ₹25 lakh). For service micro enterprises, investment in equipment above ₹4 lakh and up to ₹10 lakh (previously above ₹2 lakh and up to ₹10 lakh).
When do these changes take effect?
The revised limits are effective immediately from the date of the circular, December 31, 2012.
📜 Read the original circular — full text as issued by RBI
RBI/2012-13/354
RPCD.MSME & NFS. BC. No. 54/06.02.31/ 2012-13
December 31, 2012
The Chairman/Managing Director/
Chief Executive Officer
All Scheduled Commercial Banks
(excluding Regional Rural Banks)
Dear Sir / Madam
Revision in existing investment limits in plant and machinery / equipment for lending to Micro Enterprises in the 40:20 proportion
In terms of paragraph II (i) of the Priority Sector Circular RPCD.CO.Plan.BC 13/04.09.01/2012-13 dated July 20, 2012 , 40 percent of total advances to micro and small enterprises sector should go to Micro (manufacturing) enterprises having investment in plant and machinery up to Rs.5 lakh and micro (service) enterprises having investment in equipment up to Rs.2 lakh; and 20 percent of total advances to micro and small enterprises sector should go to Micro (manufacturing) enterprises with investment in plant and machinery above Rs. 5 lakh and up to Rs.25 lakh, and micro (service) enterprises with investment in equipment above Rs.2 lakh and up to Rs.10 lakh.
2. We have been receiving representations from banks that in view of increase in price index and cost inputs, there is a case to revisit the limits within the overall ceiling of Rs.25 lakh for micro enterprises as defined in the MSMED Act. The matter was discussed in the 14th Standing Advisory Committee meeting held on November 21, 2012 wherein it was decided to revise the existing guidelines. Consequently, the existing ceiling of lending to Micro enterprises in the 40:20 proportions has since been revised, as detailed in the Annex , with immediate effect.
3. You are requested to issue suitable instructions to your branches / controlling offices for meticulous compliance.
4. Please acknowledge receipt.
Yours faithfully,
( C.D. Srinivasan )
Chief General Manager
Annex
Sector
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2012-13/354 · issued 31 Dec 2012. The plain-English explanation above is BankPulse’s own independent summary.
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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=7781&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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