Assocham urges RBI to keep MSMEs out of base rate regime

Industry body Assocham today urged the Reserve Bank of India (RBI) to keep micro, small and medium enterprises (MSMEs) outside the proposed base rate system, which will be the new benchmark lending rate for banks from July 1.

In a note submitted to RBI Governor D Subbarao, Assocham President Swati Piramal said the MSME sector need to be kept out of the proposed base rate regime as a high interest regime will erode their competitiveness.

The chamber said by keeping the sector outside the base rate system will enable these firms access liquidity at lower rates, since making the base rate regime applicable on such industries may erode their competitive edge. Currently, these firms get loans at a rate of 8-9 per cent, it said.

The RBI intends to bring in the base rate regime from July 1 to ensure uniformity and transparency in the lending business. The proposed system will replace the current benchmark prime lending rate (BPLR) under which banks will not be allowed to lend lower than the base rate.

Assocham further said there is a need to increase the investment ceiling in plant and machinery to determine the status of MSME units. Piramal pointed out that in view of the high inflation rate, investment limits fixed are not in consonance with the present price levels for similar scale of operations.

"The criteria of investment in plant and machinery to determine the status of micro, small and medium enterprises should be raised to Rs 50 lakh, Rs 7.5 crore and Rs 15 crore, respectively," Assocham said.

Currently, investment ceiling in case of micro industries engaged in the plant and machinery sector is pegged at Rs 25 lakh as against Rs 5 crore for small industries and Rs 10 crore for medium enterprises. These ceilings were fixed in 2004 and now need revision, Assocham said.