MSMEs - Micro, Small and Medium Enterprises

Q.1. What is the definition of MSME?

A.1. The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is as under:

(a) Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:

(i) A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh;

(ii) A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and

(iii) A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.

In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No.S.O.1722(E) dated October 5, 2006 (Annex I).

(b) Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006 are specified below.

A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;

A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore; and

A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.

Q.2.What is the status of lending by banks to this sector?

A.2. Bank’s lending to the Micro and Small Enterprises is reckoned for priority sector advances. Lending to Medium enterprises is not eligible to be included for the purpose of computation of priority sector lending. Detailed guidelines on lending to the Micro, Small and Medium enterprises sector are available in our Master Circular no. RPCD.SME & NFS. BC. No. 09/06.02.31/2011-12 dated July 1, 2011. The Master circulars issued by RBI, to banks, on various matters are available on our website www.rbi.org.in and updated in July each year.

Q.3.What is meant by Priority Sector Lending?

A.3. Priority sector lending include only those sectors as part of the priority sector, that impact large sections of the population, the weaker sections and the sectors which are employment-intensive such as agriculture, and tiny and small enterprises. Detailed guidelines on Priority sector lending are available in our Master Circular on Priority sector lending no. RPCD.CO.Plan.BC 10 /04.09.01/ 2011-12 dated July 1, 2011. The Master circulars issued by RBI, to banks, on various matters are available on our website www.rbi.org.in and updated in July each year.

Q.4. What is the status of loans granted to Khadi and Village Industries Sector (KVI)?

A.4. All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery will be treated as loans to the micro enterprises segment within the MSE Sector and covered under priority sector advances.

Q.5. Are there any targets prescribed for lending by banks to MSMEs?

A.5. As per extant policy, certain targets have been prescribed for banks for lending to the Micro and Small enterprise (MSE) sector. The targets for domestic banks and foreign banks are slightly different keeping in mind the limited presence of the foreign banks. The domestic commercial banks are expected to enlarge credit to priority sector and ensure that priority sector advances (which include the micro and small enterprises sector) constitute 40 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher.