Measures taken by the government to improve credit flows to the MSME sector

Ministry of Finance

Measures taken by the government to improve credit flows to the MSME sector

Posted on: Dec 21, 2021 6:04 PM by PIB Delhi

The Reserve Bank of India (RBI) circular dated 05.02.2021 and 05.05.2021, authorized regular commercial banks (SCBs) to deduct the amount equivalent to the credit disbursed to new micro-small and medium-sized enterprises (MSMEs) , who did not take advantage of any credit facilities from banking_system on 01.01.2021, from their Time Net and Passive Demand (NDTL) for the calculation of the Cash Reserve Ratio (CRR). This was stated by the Union Minister of State for Finance, Dr Bhagwat Kisanrao Karad, in a written response to a question posed to Rajya Sabha.

The Minister said that this exemption is available up to Rs 25 lakh per borrower, paid up to fifteen days ending 12.31.2021, for a period of one year from the original date of the loan or from the term of the loan, whichever comes first.

The minister listed the measures taken by the government to improve the flow of credit to the MSME sector:

  1. The Emergency Line of Credit Guarantee Program (ECLGS) was announced as part of the Aatma Nirbhar Bharat package with the aim of helping MSMEs and enterprises to meet their operational obligations and resume their activities in view of the of the distress caused by the COVID-19 crisis, by providing lending institutions with a 100 percent guarantee against any loss they may suffer due to non-repayment of borrowers. As reported by National Credit Guarantee Trustee Company Limited, As of 10.12.2021, loans in the amount of Rs. 3.09 lakh crore have been sanctioned under the program.
  2. the psbloansin59minutes The portal was launched on November 2, 2018 to facilitate the approval in principle of loans up to Rs 1 crore (later upgraded to Rs 5 crore) to MSMEs without human intervention. As informed by SIDBI on 30.11.2021, loans amounting to 79,285 crore were sanctioned on the portal.
  3. RBI operationalized TReDS in 2017 to address the issue of late payments to MSMEs. TReDS is an electronic platform where the claims of MSMEs drawn against buyers (large companies, PSUs, ministries, etc.) are financed by multiple financiers at competitive rates through an auction mechanism. As of 12/03/2021, 26.64 lakh invoices amounting to Rs 56,694.14 crore have been updated since the creation by the three entities on the TReDS platform.
  4. Factoring transactions carried out via TReDS are eligible for classification as Priority Sectoral Loans (PSL). In addition, bank-sanctioned loans to NBFC MFIs and other MFIs (companies, trusts, etc.) that are members of the RBI recognized SRO for the sector for loans to the MSE sector, loans to registered NBFCs (other than MFIs) for Loans to MSMEs and bank financing to start-ups up to 50 crore are also part of PSL. The RBI also authorized co-lending by banks and NBFCs to the priority sector.
  5. The subordinated debt regime for distressed MSMEs was approved on 01.06.2020. As part of this program, banks provide struggling MSME promoters with subordinated debt of up to 15% of the promoter’s stake or Rs. 75 lakh, the lower of the two being infused as equity / quasi-equity. in the business.
  6. The Pradhan Mantri Mudra Yojana (PMMY) program was launched on 08.04.2015 to provide access to institutional financing to micro / small business units not financed with unsecured loans up to Rs 10 lakh for manufacturing, processing, trade , services and activities related to agriculture and contribute to the creation of income-generating activities and jobs.
  7. RBI had authorized a single restructuring for MSME accounts in accordance with the circulars of 01.01.2019, 11.02.2020 and 06.08.2020. Considering the need to support viable MSME entities due to the fallout from COVID-19, it was decided to extend the facility to restructure existing loans to MSMEs up to 50 crore classified as ‘standard’ without downgrading in the classification of assets subject to the conditions issued under circular vacuum, dated 05.05.2021 and 04.06. 2021 on ‘Resolution framework 2.0.
  8. For better transmission of monetary policy, the RBI advised banks to link all new floating rate loans to external benchmarks for MSEs from 01.10.2019 and medium-sized enterprises from 01.04.2020.
  9. The regulatory retail portfolio threshold for a single counterparty has been increased from 5 crore to 7.5 crore, allowing banks to assign a 75% lower risk weight to such exposure to MSME entities.



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Ministry of Finance of the Republic of India published this content on December 21, 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on December 21, 2021 12:49:10 PM UTC.

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