Banks advised by RBI to link MSME loans to external benchmark: Govt

With a view to improve monetary policy transmission, banks have been advised by the Reserve Bank of India (RBI) to link loans to MSMEs to an external benchmark, the government has informed Parliament.

The reset clause for loans has been reduced to three months under the external benchmark system.

Further, to make the benefit of external benchmark-based interest regime available to existing borrowers, banks have been advised to provide a switchover option as per mutually agreed terms.

Moreover, the government implements Quality Control Orders (QCOs) with exemptions and relaxations for MSMEs to ensure no disruption of domestic production, Minister of State for Micro, Small and Medium Enterprises Shobha Karandlaje in a written reply in the Lok Sabha.

The Government of India, through Bureau of Indian Standards (BIS), Department of Consumer Affairs, implements, phase-wise, QCOs issued by line ministries with exemptions/relaxations for MSMEs, to ensure that such orders do not disrupt domestic production.

Some of the key relaxations and exemptions include additional time for Micro and Small Enterprises (MSEs): six-month extension for micro enterprises and three-month extension for small enterprises.

The exemptions are extended to imports by domestic manufacturers for producing export-oriented products and exemption for import of up to 200 units for research & development purposes.

It also entails a provision for clearance of legacy stock (manufactured or imported before implementation) within six months from the effective date.

BIS provides financial incentives to MSMEs in annual minimum marking fee with concession of 80 per cent (for micro enterprises), 50 per cent (small enterprises) and 20 per cent (medium enterprises).

An additional concession of 10 per cent is provided to enterprises, which are either located in the northeast or is an MSME unit run by women entrepreneurs.

Further, the requirement of maintaining in-house laboratory has been made optional for MSME units, Parliament was told.

Besides, the government has announced Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME), which offers a credit guarantee, making it easier for such units to obtain loans, especially for purchasing essential equipment and machinery.

Schedule Commercial Banks have been mandated not to accept collateral security in case of loans up to Rs 10 lakh to units in the MSE (micro and small enterprises) sector.