RBI asks banks, NBFCs to reclassify MSMEs as per revised criteria

The RBI has asked banks, financial institutions and NBFCs to reclassify micro, small and medium enterprises on the basis of the new criteria.

Last month, the government notified new criteria for classification of micro, small and medium enterprises (MSMEs) on the basis of turnover and investment in plant and machinery.

"We advise you to initiate necessary action for reclassification of enterprises as per the new definition w.e.f July 1, 2020 and issue necessary instructions to your branches/controlling offices in this regard, at the earliest, RBI said in a communication to banks, financial institutions and non banking financial companies (NBFCs).

After 14 years since the MSME Development Act came into existence in 2006, a revision in MSME definition was announced in the Atmanirbhar Bharat package on May 13.

The Reserve Bank further said in case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration.

As per the revised definition, an enterprise is micro where the investment in plant and machinery or equipment does not exceed Rs 1 crore and turnover does not cross Rs 5 crore.

An enterprise is now classified as small enterprise, where the investment in plant and machinery or equipment does not exceed Rs 10 crore and turnover is not over Rs 50 crore.

For medium enterprise, as per the new classification, the investment in plant and machinery or equipment should not exceed Rs 50 crore and turnover should be below Rs 250 crore.