MSME loans: Getting a business loan in the first place is not easy for small businesses as lenders perceive the latter to be high-risk borrowers. Loans available by banks and NBFCs usually attract higher interest rates, around 10 per cent and above other than processing fees of up to around 3.5 per cent. For MSMEs to scale, there has been a perpetual focus on easing finance and access to it by the government other than addressing multiple other related challenges such as delayed payments to MSMEs by their buyers, loan defaults, asset-based lending, increased borrowing costs, liquidity issues and more.
In order to ease credit access for MSMEs, the government has made lending to such units eligible for priority sector advances that include sectors impacting large sections of the population, the weaker sections and the sectors which are employment-intensive such as agriculture.
Importantly, according to the Reserve Bank of India (RBI), all domestic scheduled commercial banks (except small finance banks and regional rural banks) and foreign banks with more than 20 branches must lend 7.5 per cent of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure (CEOBE), whichever is higher to the microenterprises under priority sector lending.
In terms of the interest rate, the RBI has advised banks to link loans to MSMEs to an external benchmark. External benchmark rate means the reference rate which includes, RBI policy Repo Rate, government’s three-months and six-month treasury bill yields published by Financial Benchmarks India Private Ltd (FBIL) and any other benchmark market interest rate published by FBIL.
In order to access credit under priority sector lending norms, the government has mandated Udyam registration for all MSME borrowers. MSMEs must register on the Udyam portal and get the Udyam certificate to access credit at subsidized interest rates under various schemes of the MSME ministry such as CGTMSE. Mudra Yojana, PMEGP, and more.
Enterprises having Udyam registration may get access to cheaper bank loans as the interest rate is around 1.5 per cent lower than interest on regular loans and generally begins from around 8.75 per cent per annum.
In September, scheduled commercial banks had deployed Rs 21.69 lakh crore to micro, small and medium enterprises (MSMEs) under priority sector lending, up 17.2 per cent from Rs 18.50 lakh crore deployed in September 2022, according to the latest data on sectoral deployment released by the RBI. The September deployment was 14.3 per cent of India’s Rs 151.3 lakh crore non-food credit during the month vis-a-vis 14.6 per cent of Rs 126 lakh crore non-food credit in September last year.