RBI panel on MSMEs headed by U K Sinha recommended to double collateral-free loans limit to Rs 20 lakh

The 8 member panel on Micro, Small and Medium Enterprises (MSMEs), constituted by the Reserve Bank of India (RBI) in January 2019, headed by the former Securities and Exchange Board of India (SEBI) Chairman U K Sinha submitted its report to RBI Governor Shaktikanta Das on June 17, 2019. The panel was formed to suggest long-term measures for the economic and financial sustainability of the MSME sector.U K Sinha

Key Points:

  • The Committee suggested doubling collateral-free loans for MSMEs to Rs 20 lakh from Rs 10 lakh. This is also applicable to Micro Units Development and Refinance Agency (MUDRA) and Self-Help Groups (SHGs).
  • Currently, MSMEs can get collateral-free loans under two mechanisms- based on the RBI’s 2010 circular (July 1, 2010) and on Credit Guarantee Fund (CGF). RBI’s 2010 circular prescribes a limit of Rs 10 lakh and CGF provides collateral-free loans up to Rs 2 crore.
  • If the recommendations of the committee are accepted, the loan limit under the Pradhan Mantri Mudra Yojana (PMMY) will also be doubled. At present, Mudra offers 3 types of loans – Shishu with loans up to Rs 50,000, Kishor with loans above Rs 50,000 and up to Rs 5 lakh, and Tarun with loans above Rs 5 lakh and up to Rs 10 lakh.
  • The report has also mentioned mainstreaming of the restructuring of stressed loans. RBI had given a one-year window to banks.
  • In FY19, about 60 million Mudra loans worth over Rs 3.21 lakh crore were sanctioned against a set target of Rs 3 lakh crore.
  • Total outstanding advances for MSMEs as on March 29, 2019, was Rs 15,491 crore. It was Rs 14,731 crore at the end of fiscal year 2017-18.

About MSMEs:
Manufacturing units with investment below Rs 25 lakh are termed as micro, those between Rs 25 lakh and Rs 5 crore are termed as small, and from Rs 5 crore to Rs 10 crore are termed as medium. For service units, the corresponding amounts are up to Rs 10 lakh for micro, Rs 10 lakh- 2 crore for small, and Rs 2 crore- 5 crore for medium enterprises.

About Reserve Bank Of India:
Headquarters: Mumbai
Deputy Governors: BP Kanungo, N S Vishwanathan, Viral Acharya and Mahesh Kumar Jain