Source: TOI
Context:
The Government of India has informed Parliament that banks have been advised by the Reserve Bank of India (RBI) to link loans to micro, small, and medium enterprises (MSMEs) to an external benchmark, improving monetary policy transmission.
Key Measures for MSME Loans
- Linkage to External Benchmark
- MSME loans to be tied to an external benchmark (such as RBI repo rate or other benchmarks specified by the bank).
- Reset clause reduced to three months, allowing more frequent adjustments in line with benchmark changes.
- Switchover Option
- Banks advised to offer existing borrowers the option to switch to external benchmark-based interest rates.
- Terms to be mutually agreed between bank and borrower.
Quality Control Orders (QCOs) & MSME Exemptions
- Purpose: Ensure QCOs do not disrupt domestic MSME production.
- Implemented phase-wise by line ministries through Bureau of Indian Standards (BIS).
Key Relaxations:
- Time extensions:
- Micro enterprises: 6 months
- Small enterprises: 3 months
- Import-related exemptions:
- For domestic manufacturers producing export-oriented products.
- Up to 200 units for research & development purposes.
- Legacy stock clearance:
- Stock manufactured or imported before QCO implementation to be cleared within 6 months from the effective date.
Objective
- Strengthen monetary policy transmission to MSMEs.
- Enable lower borrowing costs reflecting benchmark rates.
- Prevent disruption in domestic production due to regulatory compliance.
