RBI to count incremental credit to MSMEs as priority sector lending

The Reserve Bank of India (RBI) has decided to include incremental loans extended by banks to medium and small manufacturing enterprises after 13 November 2013, as priority sector lending.

Such credit of up to Rs10 crore extended to medium service enterprises after 13 November 2013 would also qualify as priority sector advances, RBI said in a release.

In line with the above, RBI has set a higher limit of Rs10 crore for similar incremental lending to micro and small service enterprises, against the present ceiling of Rs5 crore.

The above dispensation will remain in force up to 31 March 2014, RBI said.

RBI has already extended Rs5,000 crore refinance to SIDBI to ease liquidity stress of MSE sector.

This has been done in view of the vast  employment potential of the MSE sector and its significant contribution to exports, RBI had said in an earlier release.

The refinance will be available for direct liquidity support to finance receivables, including export receivable, to MSEs by SIDBI or for liquidity support to MSEs through selected intermediaries, that is, banks, non-banking financial companies (NBFCs) and state finance corporations (SFCs).

The refinance will be available against receivables, including export receivables, outstanding as of 14 November 2013 onwards.

The facility will be available at the prevailing 14-day term repo rate for a period of 90 days.

During this 90-day period, the amount can be flexibly drawn and repaid. At the end of the 90-day period, it can also be rolled over.

The refinance facility will be available for a period of one year up to 13 November 2014. The utilisation of funds will be governed by the policy approved by the board of SIDBI.

The liquidity support comes in the wake of slowdown in the economy, which has resulted in liquidity tightness in a large number of micro and small enterprises (MSEs) in the manufacturing and services sector, particularly due to delayed settlement of receivables from large corporate, public sector undertakings and government departments, RBI said.