MSME Classification: Banks Must Follow Udyam Certificate
Current · Source: Reserve Bank of India · RBI/2023-24/100 · issued 28 Dec 2023 · ~1 min read
Quick answerRBI mandates banks to use the Udyam Registration Certificate (URC) for MSME classification under PSL, deleting earlier self-classification guidelines. This aligns with MSME Ministry notifications.
The rule, in the simplest words
Banks must use the Udyam Registration Certificate (URC) for MSME classification under PSL.
Banks can no longer rely on their own assessment or old criteria for MSME classification.
Banks must verify URCs diligently and update their lending systems accordingly.
How it plays out — a real example
An agri & priority-sector lending officer in Indore, Mr. Kumar, ensures that all MSME borrowers provide their Udyam Registration Certificate for verification before approving loans. This change helps him avoid relying on outdated classification criteria and ensures that his bank is in compliance with RBI regulations.
What changed
RBI has amended the Master Direction on MSME lending to state that for Priority Sector Lending (PSL) purposes, banks must be guided solely by the classification recorded in the Udyam Registration Certificate (URC). The earlier detailed classification criteria (paras 2.4 to 2.7) have been deleted from the Master Direction.
What it means for you
Banks can no longer rely on their own assessment or the old criteria for MSME classification under PSL; the Udyam certificate is now the single source of truth. This reduces ambiguity and ensures uniformity, but also means banks must verify URCs diligently and update their lending systems accordingly.
What you must do
Update internal MSME lending policies to reference Udyam Registration Certificate as the sole basis for PSL classification.
Train credit and operations teams to accept only Udyam certificates for MSME status verification.
Audit existing MSME loan portfolios to ensure classification aligns with Udyam certificates.
Coordinate with MSME Ministry for any clarifications on Udyam registration processes.
Who it affects
All Scheduled Commercial Banks (except RRBs), Small Finance Banks, Local Area Banks, MSME lending departments, Priority Sector Lending compliance teams
❓ Common questions
Can we still use the old MSME classification criteria for loans sanctioned before this circular?
The circular does not specify a transition period; it deletes the old criteria from the Master Direction. Banks should apply the new rule prospectively and may need to reclassify existing loans if Udyam certificates are available.
What if a borrower does not have a Udyam Registration Certificate?
For PSL classification, the Udyam certificate is now mandatory. Banks should guide borrowers to register on the Udyam portal before sanctioning or classifying the loan under MSME PSL.
📜 Read the original circular — full text as issued by RBI
RBI/2023-24/100
FIDD.MSME & NFS.BC.No.13/06.02.31/2023-24
December 28, 2023
The Chairman/ Managing Director/Chief Executive Officer
All Scheduled Commercial Banks (except RRBs)
(including Small Finance Banks and Local Area Banks)
Dear Sir / Madam
Classification of MSMEs
Please refer to para 2.4 to 2.7 of the Master Direction - Lending to Micro, Small & Medium Enterprises (MSME) Sector dated July 24, 2017 (as updated on July 29, 2022), inserted in terms of the circular FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21 dated July 2, 2020 on the new definition of MSME. The revised criteria for classification of enterprises as Micro, Small and Medium enterprises were notified by the Ministry of MSME, GoI vide Gazette Notification S.O. 2119 (E) dated June 26, 2020 . Subsequent amendment has been made to the above notification by Government of India (GoI) vide Gazette Notification S.O. 4926 (E) dated October 18, 2022 .
2. As classification / re-classification of MSMEs is the statutory responsibility of Ministry of MSME, GoI as per the provisions of the MSMED Act, 2006, regulated entities shall be guided by the notifications issued by the Ministry of MSME in this regard, from time to time.
3. Accordingly, the following amendments are made in the above Master Direction- Lending to Micro, Small & Medium Enterprises (MSME) Sector:
Existing para
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2023-24/100 · issued 28 Dec 2023. The plain-English explanation above is BankPulse’s own independent summary.
Train credit and operations teams to accept only Udyam certificates for MSME status verification.
📜 Compliance
Update internal MSME lending policies to reference Udyam Registration Certificate as the sole basis for PSL classification.
Audit existing MSME loan portfolios to ensure classification aligns with Udyam certificates.
Coordinate with MSME Ministry for any clarifications on Udyam registration processes.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (All Scheduled Commercial Banks (except RRBs), Small Finance Banks, Local Area Banks, MSME lending departments, Priority Sector Lending compliance teams), your first concrete step on “MSME Classification: Banks Must Follow Udyam Certificate” is: “Update internal MSME lending policies to reference Udyam Registration Certificate as the sole basis for PSL classification.” (RBI issued this 28 Dec 2023).
Circular: RBI/2023-24/100 -- MSME Classification: Banks Must Follow Udyam Certificate
Issued: 28 Dec 2023
Action required: Update internal MSME lending policies to reference Udyam Registration Certificate as the sole basis for PSL classification.
Action required: Train credit and operations teams to accept only Udyam certificates for MSME status verification.
Action required: Audit existing MSME loan portfolios to ensure classification aligns with Udyam certificates.
Action required: Coordinate with MSME Ministry for any clarifications on Udyam registration processes.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
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=12583&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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