What changed
RBI requires banks to pass on the cost benefits from CGTMSE guarantees and zero risk weight on the guaranteed portion to MSE borrowers through a differential interest rate. Additionally, banks must review their MSE loan policies to incorporate board-approved credit scoring models for loan evaluation.
What it means for you
Banks can reduce pricing for MSE loans by leveraging CGTMSE guarantees and capital relief on the guaranteed portion, but the rate cannot fall below the bank's base rate. This encourages more competitive lending to MSEs while maintaining a floor. The mandate to use credit scoring models aims to standardize and improve risk assessment for MSE proposals.
What you must do
- Adjust MSE loan pricing to reflect CGTMSE guarantee benefits and zero risk weight on the guaranteed portion, ensuring the rate is not below the bank's base rate.
- Review and update your MSE loan policy to include board-approved credit scoring models for evaluating loan proposals.
- Communicate the differential interest rate structure to relevant branches and credit teams for implementation.
Who it affects
All scheduled commercial banks (excluding RRBs), MSE borrowers, Bank credit and risk management teams
Can the differential interest rate be set below the base rate?
No, the RBI circular explicitly states that the differential rate of interest for MSE borrowers must not be below the bank's base rate.
What incentives are banks supposed to pass on to MSE borrowers?
Banks must consider the credit guarantee cover from CGTMSE and the zero risk weight for capital adequacy on the guaranteed portion, and offer a lower interest rate reflecting these benefits.
What changes are required in loan policy for MSEs?
Banks must review their loan policy to incorporate board-approved credit scoring models for evaluating MSE loan proposals.