What changed
RBI issued a Master Circular consolidating all existing instructions on MSME lending up to June 30, 2013. The circular formally adopts the MSMED Act 2006 definitions, which include services sector enterprises and medium enterprises, with investment-based classification for manufacturing and service entities.
What it means for you
Banks must now use the MSMED Act 2006 definitions for classifying MSME borrowers, with specific investment thresholds for plant and machinery (manufacturing) or equipment (services). Loans to micro and small enterprises in both manufacturing and services qualify as priority sector advances, subject to meeting the investment criteria.
What you must do
- Update internal MSME classification systems to align with MSMED Act 2006 investment thresholds for manufacturing and service enterprises.
- Ensure all new MSME loans are categorized correctly as micro, small, or medium based on investment in plant and machinery or equipment.
- Review existing MSME loan portfolios to reclassify borrowers where necessary, especially those in the services sector.
- Train credit officers on the revised definitions and priority sector eligibility criteria for micro and small enterprises.
Who it affects
All scheduled commercial banks (excluding RRBs), MSME lending departments, Priority sector lending teams, Credit risk and compliance officers
What are the investment limits for manufacturing MSMEs under this circular?
Micro enterprises: investment in plant and machinery up to Rs. 25 lakh. Small enterprises: between Rs. 25 lakh and Rs. 5 crore. Medium enterprises: between Rs. 5 crore and Rs. 10 crore, excluding land and building.
Are service sector MSMEs eligible for priority sector loans?
Yes, loans to micro and small service enterprises are eligible for priority sector classification, provided they meet the investment criteria: micro (equipment up to Rs. 10 lakh) and small (equipment between Rs. 10 lakh and Rs. 2 crore).
Does this circular change any existing lending norms?
No, it consolidates existing guidelines up to June 30, 2013, without introducing new instructions. Banks must continue to follow the MSMED Act 2006 definitions and priority sector rules as previously communicated.