In its bid to improve monetary policy transmission and strengthen credit access for India's 6+ crore micro, small, and medium enterprises, the Reserve Bank of India advised banks to link MSME loans to an external benchmark, the government informed Parliament on Sunday.
The move aimed to ensure faster and more transparent transmission of changes in RBI policy rates into interest rates charged to MSME borrowers, thereby reducing borrowing costs when policy rates are lowered and enhancing predictability for small businesses.
Under the external benchmark system, the reset clause for such loans has been reduced to three months, allowing the rates to be recalibrated more frequently in line with prevailing policy. Banks have also been asked to offer existing borrowers the option to shift to the benchmark‑linked regime on mutually agreed terms.
The government, in response to questions in the Lok Sabha, also outlined a set of complementary measures to strengthen the MSME sector. Through the Bureau of Indian Standards under the Department of Consumer Affairs, QCOs are being introduced in a phased manner, with specific exemptions and relaxations for MSMEs.
These include longer compliance timelines-six months for micro enterprises and three months for small enterprises-exemption of certain imports for export-oriented production and R&D, and the clearance of legacy stock within six months of implementation.
To ease the cost of standards compliance, BIS is offering concessions on minimum marking fees: 80% for micro, 50% for small, and 20% for medium enterprises, with an additional 10% concession for units in the Northeast and those run by women entrepreneurs. The requirement for in‑house laboratories has also been made optional for MSMEs.
The next supportive element is through MCGS‑MSME, which grants government‑backed guarantees on loans for machinery and equipment, thereby reducing the credit risk for the lenders.
Scheduled commercial banks have also been under mandate not to take collateral security for loans up to Rs. 10 lakh to micro and small enterprises, a move that can increase credit access to a great extent.
Taken together, these reforms aim to improve the ease of doing business, strengthen compliance frameworks without hampering domestic production, and expand access to affordable credit for small enterprises. The latter is an essential component in sustaining growth amidst a challenging economic environment.