The credit policy announced by Reserve Bank of India (RBI) has direct and indirect effects on MSMEs. They are meant for stepping up credit flow to small and medium enterprises and all public sector banks need to implement them to help the credit become accessible.

• The RBI has decided to make it compulsory for banks not to ask for any collateral for loans amounting up-to Rs.10 lakh when the loan is borrowed by Micro and Small Enterprises. (MSMEs). This will help in the growth of entrepreneurship that would eventually result in the launch of cheaper and better products in the market.

• RBI is forming empowered committees at its regional offices with RBI’s regional director as Chairman. This committee will review the progress in MSME financing and rehabilitate SME and SSI that are in a poor state. The committee shall also coordinate with other banks, financial institutions and state governments to improve bottlenecks and mandate smooth flow of credit to MSME sector. The regional committees shall also be instrumental in forming similar committees in district levels.

• The policy ensures specialized SME entrepreneurs to have easy access to credit and also equips bank personnel to gain required expertise. Re-designation of the existing SSI branches to SME branches are also on the anvil. This will surely lead to rise in competition among banks to lend money to SMEs. This will also help them to be better  equipped and flexible to extend finance and other services to SMEs.

• According to the circular issued by RBI on lending to SSI, vide circular RPCD.PLNFS.BC.No.03/06.02.31/2005-06 dated July 1, 2005, makes it mandatory of banks to accept loan applications of SSI units and also states a limit up to which banks shall be obliged to offer collateral-free loans. Based on these guidelines, more liberal policies for granting of loans to MSMEs can be formulated in-comparison to the existing policies. Till the Board of Banks formulates such policies, the current instructions of Reserve Bank are applicable to granting of loans for the SME sector.

RBI credit policy for MSMEs has opened up the scope for SMEs to expand and grow. The policies also provide an opportunity to nation to harness its latent strength in the form of MSMEs. The new guidelines are a guarantee to see the birth of new entrepreneurs.

This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to
info@biz2credit.com