MUMBAI: In a relief to small service providers, the Reserve Bank of India (RBI) on Wednesday lifted credit caps with immediate effect for all service sector Micro, Small and Medium Enterprises (MSME) borrowers qualifying under the priority sector lending norms. In February, the Central bank had made a similar relaxation for MSMEs engaged in manufacturing activities.
To increase the credit flow, the RBI also tweaked loan disbursement targets for banks at 7.5 per cent of Adjusted Net Bank Credit or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, as per the extant guidelines on priority sector lending.Until now, though MSME advances were categorised as priority sector loans, it came with certain limits like `25 lakh for micro enterprises in the manufacturing sector, while for small and medium enterprises it was `25 lakh-`5 crore and `5-`10 crore respectively. Similarly, for service sector, the cap was set at `10 lakh for micro, `10 lakh-`2 crore for small and `2 crore-`5 crore for medium enterprises.
The move relaxing the credit cap and mandating targets for banks is to ensure that the credit flow to the sector doesn’t dry up amid tightened NPA framework. Bankers have indicated that RBI’s recent asset-restructuring norms could stifle credit growth, particularly to small industrial borrowers. As on March 2017, MSMEs’ credit stood at `16 lakh crore, of which 84 per cent was met by banks and the remaining coming from alternate sources like Non-Banking Financial Companies.
However, credit rating agency ICRA Limited estimates that there was a huge unmet demand, and disbursements should be about `25 lakh crore during the last fiscal. The NPAs in MSMEs stood at about 8.4 per cent of total advances as on March 2017.Meanwhile, as per the RBI’s latest circular, domestic commercial banks and foreign banks with 20 branches and above are required to achieve a sub-target of 7.5 per cent.
This is inclusive of the Prime Minister’s Task Force recommendations, where banks are advised to achieve 20 per cent annual credit growth to MSMEs, 10 per cent annual growth in the number of micro enterprise accounts and 60 per cent total lending to MSE sector as on corresponding quarter of the previous year to micro enterprises. The banks were also mandated to open at least one specialised branch in each district to provide better service. As on March 2017, there are 2,998 such specialised MSME branches.