Skip to main content

Lending to Micro, Small & Medium Enterprises (MSMEs) Sector

Reserve Bank of India (RBI) has amended the directions on lending to Micro, Small & Medium Enterprises (MSMEs) sector.

To whom shall the directions be applicable?

The directions shall apply to Scheduled Commercial Banks (excluding Regional Rural Banks).

Which enterprises are classified as Micro, Small or Medium?

An enterprise shall be classified as a micro, small or medium enterprise based on the following criteria –

Classification Maximum investment in plant and machinery or equipment And Maximum turnover
Micro enterprise ₹2.5 crore ₹10 crore
Small enterprise ₹25 crore ₹100 crore
Medium enterprise ₹125 crore ₹500 crore

What registrations are required to be made by MSMEs?

  • MSMEs are required to register online on the Udyam Registration portal and obtain ‘Udyam Registration Certificate (URC)’. For priority sector lending purposes, banks shall be guided by the classification recorded in the URC.
  • Retail and Wholesale trade are included as MSMEs for the limited purpose of priority sector lending and are allowed to be registered on Udyam Registration Portal.
  • The certificate issued on Udyam Assist Portal (UAP) to Informal Micro Enterprises (IMEs) shall be treated at par with URC for the purpose of availing priority sector lending benefits. IMEs with an Udyam Assist Certificate shall be treated as micro enterprises for the purpose of priority sector lending classification.

What are the directions on lending to MSME sector?

  • Banks shall not accept collateral security for loans up to ₹20 lakh extended to units in the MSE sector. Banks shall also extend collateral-free loans up to ₹20 lakh to all units financed under the Prime Minister Employment Generation Programme (PMEGP) administered by Khadi and Village Industries Commission (KVIC).
  • Banks may, on the basis of good track record and financial position of the MSE units, increase the limit to dispense with the collateral requirement for loans up to ₹25 lakh.
  • Banks may avail the benefit of Credit Guarantee Scheme cover, where applicable.
  • Accepting gold and silver as collateral pledged voluntarily by borrowers for loans sanctioned by the banks upto the collateral free limit, will not be construed as a violation of the above mandate.
  • A composite loan limit of ₹1 crore can be sanctioned by banks to enable the MSE entrepreneurs to avail of their working capital and term loan requirement through Single Window.
  • Banks which are eligible to issue credit cards may issue General Credit Cards to individuals / entities sanctioned working capital facilities for non-farm entrepreneurial activities which are eligible for classification under the priority sector guidelines.
  • Timeline for credit decisions for loans up to ₹25 lakh to units in the MSE borrowers shall not be more than 14 working days. 
  • The revival and rehabilitation of MSME units having loan limits up to ₹25 crore would be undertaken under the Framework for Revival and Rehabilitation of MSMEs issued by the RBI on March 17, 2016.

What institutional arrangements are required for lending to MSME sector?

  • Public sector banks shall open at least one specialised branch in each district. The banks may categorise their general banking branches having 60% or more of their advances to MSME sector as specialized MSME branches.
  • Empowered Committees on MSMEs are constituted at the Regional Offices of RBI, under the chairmanship of the Regional Directors with representatives from government and banks. The Committee would meet periodically and review the progress in MSME financing as also revival and rehabilitation of stressed Micro, Small and Medium units. 

What are the directions on delayed payment to MSMEs?

Micro, Small and Medium Enterprises Development (MSMED), Act 2006, contain the provisions of The Interest on Delayed Payment to Small Scale and Ancillary Industrial Undertakings Act, 1998, as below –

  • The buyer has to make payment to the supplier on or before the date agreed upon between him and the supplier in writing or, in case of no agreement, before the appointed day. The period agreed upon between the supplier and the buyer shall not exceed 45 days from the date of acceptance or the day of deemed acceptance.
  • In case the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, on the date agreed on, at 3 times of the Bank Rate notified by the RBI.


References

Reserve Bank of India. (2017, July 24). 'Master Direction - Lending to Micro, Small & Medium Enterprises (MSME) Sector'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11060

Reserve Bank of India. (2026, February 09). 'Lending to Micro, Small & Medium Enterprises (MSME) Sector (Amendment) Directions, 2026'. Retrieved from https://rbi.org.in/Scripts/NotificationUser.aspx?Id=13290&Mode=0

Reserve Bank of India. (2026, February 09). 'RBI Issues Amendment Directions on Lending to Micro, Small & Medium Enterprises (MSME) Sector'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=62190


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Regulatory Measures for the Foreign Exchange Market

Reserve Bank of India (RBI) has announced regulatory measures for the foreign exchange market. Cancellation and rebooking / rollovers of foreign exchange derivative contracts An Authorised Dealer shall not permit users to rebook any foreign exchange derivative contract involving the INR, whether deliverable or non-deliverable, which has been cancelled with any of the Authorised Dealers. An Authorised Dealer may, however, continue to permit users to rollover foreign exchange derivative contracts on maturity, subject to compliance with the extant directions. Threshold limit for taking positions without requirement to establish the existence of underlying Authorised Dealers were permitted to allow users to take positions upto USD 100 million equivalent of notional value (outstanding at any point of time), across all Authorised Dealers, for hedging contracted exposure without the requirement to establish the existence of underlying exposure.  Further, a user was allowed to take positio...
Post a Comment
Read more

Credit Facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs)

Reserve Bank of India (RBI) has issued guidelines on credit facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs). What are the guidelines on credit facilities to SCs & STs? District Level Consultative Committees formed under the Lead Bank Scheme should continue to be the principal mechanism of co-ordination between banks and development agencies.  National Scheduled Tribes Finance & Development Corporation and National Scheduled Castes Finance & Development Corporation have been set up under the administrative control of Ministry of Tribal Affairs and Ministry of Social Justice & Empowerment, respectively. Banks should advise their branches / controlling offices to render all the necessary institutional support to enable these institutions to achieve the desired objectives. Loans sanctioned to State Sponsored Organisations for Scheduled Castes / Scheduled Tribes for the specific purpose of purchase and supply of inputs and / or the marketing of the out...
Post a Comment
Read more

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) (Updated as on September 11, 2026)

Reserve Bank of India (RBI) has issued the directions on maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) by banks. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Payments Banks (PBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) District Central Co-operative Banks (DCCBs) What is CRR? Every bank shall maintain in India by way of cash reserve, a sum equivalent to such percent of its Net Demand and Time Liabilities (NDTL) in India, as the RBI in terms of Section 42(1) of the RBI Act, 1934 (for scheduled banks) and Section 18(1) of the Banking Regulation Act (BR Act), 1949 (for non-scheduled banks) [including provisions of Section 18(1) of the BR Act as applicable to co-operative banks], may specify. What is incremental CRR? In terms of Secti...
Post a Comment
Read more

Highlights of RBI Annual Report 2025-26 – Chapter 1 to 3

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the first article in the series.  Legal framework for publication of Annual Report by the RBI Report of the Central Board of Directors on the working of RBI for the year is submitted to the Central Government in terms of Section 53(2) of the RBI Act, 1934. The letter of transmittal is signed by the RBI Governor and addressed to the Finance Secretary, Ministry of Finance, Government of India. Documents submitted by the RBI to the Central Government In pursuance of Section 53(2) of the RBI Act, 1934, the following documents have been submitted to the Central Government – A copy of the Annual Accounts for the year ended March 31, 2026 certified by the RBI’s Auditors and signed by Chief General Manager-in-charge, all the Deputy Governors and Governor. 2 copies of the Annual Report of the Central Board on the workin...
Post a Comment
Read more

What is Ways and Means Advances (WMA)? (Updated as on September 25, 2026)

Reserve Bank of India (RBI) has recently announced the Ways and Means Advances (WMA) limit for the Government of India. So, what is WMA? What is Ways and Means Advances (WMA)? Ways and Means Advances (WMA) is a collateral free clean advance availed by the Central and State Governments from RBI, to tide over temporary mismatches in the receipts and payments. Section 17(5) of the Reserve Bank of India Act, 1934 empowers RBI to grant WMA to Central and State Governments, as and when required by them. What is Special WMA / Special Drawing Facility (SDF)? In addition to WMA, State Governments are also eligible for a Special Drawing Facility (SDF), which is granted against collateral of Government Securities held by the State Governments.  SDF availed by State Governments / UTs is linked to the quantum of their investments in marketable securities issued by the Government of India, including Auction Treasury Bills (ATBs).  (Updated as on June 28, 2024) Based on the recommendations m...
Post a Comment
Read more