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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


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