What changed
RBI issued a Master Circular consolidating all existing MSME lending instructions up to June 30, 2010. The circular formally adopts the MSMED Act 2006 definitions, which now include services sector enterprises and medium enterprises, with specific investment limits for micro, small, and medium categories.
What it means for you
Banks must classify MSME borrowers strictly per the MSMED Act definitions, using investment in plant and machinery (manufacturing) or equipment (services) as the criterion. Lending to medium enterprises under this definition does not qualify as priority sector advances. The circular also clarifies that Khadi and Village Industries advances count toward the micro enterprise sub-target.
What you must do
- Update internal MSME classification systems to align with MSMED Act 2006 investment thresholds for manufacturing and services.
- Ensure that lending to medium enterprises is not included in priority sector advance calculations.
- Train credit officers on the new definitions, especially the inclusion of services sector and the exclusion of land and building from investment calculations.
- Review existing MSME loan portfolios to reclassify borrowers as per the updated definitions.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), MSME lending departments, Priority sector compliance teams, Credit risk and policy teams
What are the investment thresholds for manufacturing MSMEs under this circular?
Micro: investment in plant and machinery up to Rs. 25 lakh; Small: Rs. 25 lakh to Rs. 5 crore; Medium: Rs. 5 crore to Rs. 10 crore. Investment excludes land and building.
Does lending to medium enterprises count as priority sector?
No, the circular explicitly states that lending by banks to medium enterprises will not be included for reckoning of advances under the priority sector.
How are service enterprises defined for MSME classification?
Service enterprises are classified based on investment in equipment: Micro up to Rs. 10 lakh; Small Rs. 10 lakh to Rs. 2 crore; Medium Rs. 2 crore to Rs. 5 crore. This includes small road & water transport operators, retail trade, and professional/self-employed persons.