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
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.