Lok Sabha Question No. 2074 (UNSTARRED), answered on 2024-12-09
Subject: Criteria for Loans to MSMEs
Ministry: FINANCE
Asked by: Shri Bhaskar Murlidhar Bhagare

## GOVERNMENT OF INDIA MINISTRY  OF FINANCE

## DEPAR'|MEN'T OF FINANCIAL SERVICES

## LOK SABHA UNSTARRED  QUESTION  NO. 2074

ANSWERED ON MONDAY, THE DECEMBER9.2}}4II8AGRAHAYANA, 1946 (Saka)

## CRITERIA FOR LOANS TO MSMEs

2074. SHRI BHASKAR  MURI,IDHAR BHAGARE:

Will the Minister  of FINANCE be pleased to state:

- (a) whether the Banks have set any criteria for lending loans to MSME and if so, the details thereof;
- (b) whether many MSMEs are facing problems in getting loans from banks and if so, the steps taken by the Government  to overcome  the challenges being faced by the MSMEs in getting loans from banks in Maharashtra;
- (c) whether the Government  has made any assessment  of the collateral securities being demanded  by the banking institutions  while offering  loans to MSMEs in the Maharashtra  and if so, the details thereof;
- (d) whether any action is being taken to ensure that the collateral  requirements for loans being demanded from MSMEs in the said State are fair and reasonable  according  to the size and financial capability of their business  and if so, the details thereof;  and
- (e) whether the Government  proposes  other schemes to provide  easy credit facilities  to MSMEs and if so. the details thereofl

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI PANKAJ CHAUDHARY)

- (a): In a deregulated credit environment, Banks  are free to take credit related decisions,  including criteria for lending  to MSMEs,  in terms of their Board approved policies and RBI's broad regulatory guidelines.

(b): Some of the *.u!ur., taken to facilitate the flow of credit to MSME sector  in the country  are as follows:

- i. New revised criteria for classification of MSMEs based  on both investment  size and turnover.
- ii. 'Udyam Registration' for MSMEs, for ease of doing business.
- iii. Inclusion of Retail and Wholesale Traders as MSMEs w.e.f. 2.7.2021.
- iv. pradhan  Mantri  Mudra Yojana  (PMMY)  scheme launched in April, 2015 to provide collateral fiee access to institutional  finance to unfunded Micro/Small  business  units with collateral  free loans. The limit of Mudra loans under the PMMY  has been enhanced  from earlier level of Rs. l0 lakh to Rs. 20 lakh and a new category of Tarun Plus has been added where loans upto Rs. 20 lakh would be available to the entrepreneurs who have availed and successfully  repaid previous  loans under  the farun category.
- v. Computation of working capital requirements of MSE units to be done by banks on the basis of simplified  method  of minimum  2Oo/o  of theprojected  annual turnover  of the unit for borrowal limits up to {5 crore.
- vi. For loans up to {25 lakh to the MSE borrowers. banks are advised that the timelines for credit decisions shall not be more than 14 working  days.
- vii. In the wake of Covid-19  pandemic, Emergency Credit Line Guarantee  Scheme (ECLGS) was launched in May, 2020 to support  eligible Micro, Small and Medium Enterprises  (MSMEs) and other business  enterprises in meeting their operational  liabilities and restarting their businesses.
- viii. Trade Receivables Discounting System (TReDS) has been operationalized to address  the problem  of delayed payments to MSMEs. Further, Gazette Notification  dated 7 .11.2024 has been issued by the Ministry  of Micro, Small & Medium  Enterprises (M/o MSME), reducing the turnover threshold for companies to onboard  on TReDS from Rs. 500 crore to Rs. 250 crore.
9. RBI has fixed target  of 7.5 percent of Adjusted  Net Bank Credit (ANBC), or Credit Equivalent Amount of Off-Balance Sheet Exposure, whichever  is higher, fbr Scheduled  Commercial Banks (SCBs) for lending  to Micro Enterprises, under priority  sector  lending  norms. lx
10. RBI has facilitated the AA framework under which information  related to financial assets of a customer is collected from the holders of such information  (Financial Information  Providers) (FlP) and is presented to the customers  or specified  irsers (Financial lnformation Users) digitally through a secured  process.  GSTN has been included in the AA ecosystem  as an FIP for ease of MSME lending. x

The credit outstanding  of Scheduled Commercial Banks (SCBs)  to MSME sector has improved for All India  and that for Maharashtra, as given below:

## (Amount in t lakh crore)

| Credit Outstanding of Scheduled Commercial Banks to MSME sector   | Credit Outstanding of Scheduled Commercial Banks to MSME sector   | Credit Outstanding of Scheduled Commercial Banks to MSME sector   | Credit Outstanding of Scheduled Commercial Banks to MSME sector   |
|-------------------------------------------------------------------|-------------------------------------------------------------------|-------------------------------------------------------------------|-------------------------------------------------------------------|
|                                                                   | Mar-22                                                            | Mar-23                                                            | NIar-24                                                           |
| All India                                                         | 20.1 1                                                            | 22.6                                                              | 27.25                                                             |
| Maharashtra                                                       | 3.39                                                              | 3.8                                                               | 4.25                                                              |
| Source: RBI                                                       | Source: RBI                                                       | Source: RBI                                                       | Source: RBI                                                       |

(c) and (d): As informed  by RBI, in terms of paragraph 4.1 of the Master Direction on Lending to Micro, Small & Medium Enterprises  (MSME) Sector (updated  as on June 11.2024)', Banks are mandated  not to accept  collateral security in the case of loans up to Rs.10 lakh extended to units in the MSE sector. Banks may. on the basis of good track record and financial position of the MSE units. increase the limit to dispense  with the collateral requirement  for loans up to Rs. 25 lakhs (with the approval of, the appropriate authority).  Further.  Credit  Guarantee  Scheme for Micro and Small Enterprises, a scheme  of Ministry  of Micro, Small & Medium Enterprises (M/o MSME) facilitates the flow of credit to the Micro and Small  Enterprise  sector without the hassles of collateral and third party guarantee,  up to a maximum of Rs. 5 crore.

- (e): The following announcements  made in Union Budget 2024-25 for supporting MSMEs are being implemented:
- i. A credit guarantee scheme by pooling of credit risks of MSMEs that will facilitate term loans to MSMEs for purchase  of machinery  and equipment  without collateral or third-party guarantee.
- ii. Public Sector Banks to build their in-house capability to assess MSMEs  and will develop a new credit assessment model, based  on the scoring of digital footprints of MSMEs.
- iii. Credit availability  to MSMEs during their stress period through  a guarantee from a government promoted  fund.

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