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.
What you must do
- 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.
Who it affects
All Scheduled Commercial Banks (excluding Regional Rural Banks), Priority sector lending departments, MSME lending teams, Branch managers handling micro enterprise loans
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.