RBI/FIDD/2017-2018/56
Master Direction FIDD.MSME & NFS.12/06.02.31/2017-18

July 24, 2017
(Updated as on February 09, 2026)
(Updated as on July 23, 2025)
(Updated as on June 11, 2024)
(Updated as on December 28, 2023)
(Updated as on July 29, 2022)
(Updated as on April 25, 2018)

The Chairman / Managing Director / Chief Executive Officer
All Scheduled Commercial Banks
(excluding Regional Rural Banks)

Madam/Dear Sir,

Master Direction - Lending to Micro, Small & Medium Enterprises (MSME) Sector

The Reserve Bank of India has, from time to time, issued a number of instructions / guidelines to banks relating to lending to the Micro, Small and Medium Enterprises Sector. The Master Direction enclosed incorporates the updated instructions / guidelines on the subject. The list of circulars consolidated in this Master Direction is indicated in the Appendix.

Yours faithfully

(R Giridharan)
Chief General Manager

Master Direction – Reserve Bank of India [Lending to Micro, Small & Medium Enterprises (MSME) Sector] - Directions, 2017

In exercise of the powers conferred by Sections 21 and 35 A of the Banking Regulation Act, 1949, the Reserve Bank of India, being satisfied that it is necessary and expedient in the public interest to do so, hereby, issues the Directions hereinafter specified.

CHAPTER – I
PRELIMINARY

1.1 Short Title and Commencement

a) These Directions shall be called the Reserve Bank of India [Lending to Micro, Small & Medium Enterprises (MSME) Sector] Directions, 2017.

b) These Directions shall come into effect on the day they are placed on the official website of the Reserve Bank of India.

1.2 Applicability

The provisions of these Directions shall apply to all Scheduled Commercial Banks (excluding Regional Rural Banks RRBs).

1.3 Definitions/ Clarifications

In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them as below:

a) The MSMED Act, 2006 means ‘Micro, Small and Medium Enterprises Development (MSMED) Act, 2006’ as notified by the Government of India on June 16, 2006 and the amendments, if any, carried out therein by the Government of India from time to time.

b) ‘Micro, Small and Medium Enterprises’ mean the enterprises as defined in the MSMED Act, 2006 and the amendments, if any, carried out therein by the Government of India from time to time.

CHAPTER – II

2. Micro, Small and Medium Enterprises Development (MSMED) Act, 2006

2.2 All the above enterprises are required to register online on the Udyam Registration portal and obtain ‘Udyam Registration Certificate’. For PSL purposes banks shall be guided by the classification recorded in the Udyam Registration Certificate (URC).

2.3 Retail and Wholesale trade are included as MSMEs for the limited purpose of priority sector lending and are allowed to be registered on Udyam Registration Portal.

CHAPTER - III

3. Targets / sub-targets for lending to MSME sector

3.2 In terms of the recommendations of the Prime Minister’s Task Force on MSMEs, banks are advised to achieve:

(i) 20 per cent year-on-year growth in credit to micro and small enterprises,

(ii) 10 per cent annual growth in the number of micro enterprise accounts and

(iii) 60 per cent of total lending to MSE sector as of the corresponding quarter of the previous year to micro enterprises.

CHAPTER - IV

4. Common guidelines/Instructions for lending to MSME sector

4.1 Collateral¹

1. Banks are mandated not to accept collateral security in the case of loans up to ₹20 lakh extended to units in the MSE sector. Banks are also advised to extend collateral-free loans up to ₹20 lakh to all units financed under the Prime Minister Employment Generation Programme (PMEGP) administered by KVIC.

2. Banks may, on the basis of good track record and financial position of the MSE units, increase the limit to dispense with the collateral requirement for loans up to ₹25 lakh as per their internal policy.

3. Banks may avail the benefit of Credit Guarantee Scheme cover, where applicable.

4. However, accepting gold and silver as collateral pledged voluntarily by borrowers for loans sanctioned by the banks upto the collateral free limit, will not be construed as a violation of the above mandate.

4.2 Composite loan

A composite loan limit of ₹1 crore can be sanctioned by banks to enable the MSE entrepreneurs to avail of their working capital and term loan requirement through Single Window.

4.3 General Credit Card (GCC) Facility

4.4 Streamlining flow of credit to Micro and Small Enterprises (MSEs) for facilitating timely and adequate credit flow during their ‘Life Cycle’:

In order to provide timely financial support to Micro and Small enterprises facing financial difficulties during their ‘Life Cycle’, detailed guidelines were issued to banks vide circular FIDD.MSME & NFS.BC.No.60/06.02.31/2015-16 dated August 27, 2015 on the captioned subject. In accordance with the guidelines, banks shall review and tune their lending policies to the MSE sector by incorporating therein the following provisions so as to facilitate timely and adequate availability of credit to viable MSE borrowers especially during the need of funds in unforeseen circumstances:

1. To extend standby credit facility in case of term loans.

2. Additional working capital to meet with emergent needs of MSE units.

3. Mid-term review of the regular working capital limits, where banks are convinced that changes in the demand pattern of MSE borrowers require increasing the existing credit limits of the MSEs, every year based on the actual sales of the previous year.

4. Timeline for credit decisions for loans up to ₹25 lakh to units in the MSE borrowers shall not be more than 14 working days. For loans above the aforementioned limit, timelines shall be as per the Board approved sanction time norms. All credit related information pertaining to MSMEs including timelines for credit decisions, indicative document checklist etc., shall be displayed under a separate tab prominently on the bank's website.

4.5 Debt Restructuring Mechanism for MSMEs

ii) All commercial banks are also advised in terms of our circular RPCD.SME&NFS.BC.No.102/06.04.01/2008-09 dated May 4, 2009 to do the following:

1. put in place loan policies governing extension of credit facilities, Restructuring/Rehabilitation policy for revival of potentially viable sick units / enterprises (now read with guidelines on Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises issued on March 17, 2016) and non- discretionary One Time Settlement scheme for recovery of non- performing loans for the MSE sector, with the approval of the Board of Directors and

2. give wide publicity to the One-Time settlement scheme implemented by them, by placing it on the bank’s website and through other possible modes of dissemination. They may allow reasonable time to the borrowers to submit the application and also make payment of the dues in order to extend the benefits of the scheme to eligible borrowers.

3. implement recommendations with regard to timely and adequate flow of credit to the MSE sector.

4.6 Framework for Revival and Rehabilitation of MSMEs

The Ministry of Micro, Small and Medium Enterprises, Government of India, vide their Gazette Notification dated May 29, 2015 had notified a ‘Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises’ to provide a simpler and faster mechanism to address the stress in the accounts of MSMEs and to facilitate the promotion and development of MSMEs. After carrying out certain changes in the captioned Framework in consultation with the Government of India, Ministry of MSME so as to make it compatible with the existing regulatory guidelines on ‘Income Recognition, Asset Classification and Provisioning pertaining to Advances’ issued to banks by RBI, the guidelines on the captioned Framework along with operating instructions were issued to banks on March 17, 2016. The revival and rehabilitation of MSME units having loan limits up to ₹25 crore would be undertaken under this Framework. The revised Framework supersedes our earlier Guidelines on Rehabilitation of Sick Micro and Small Enterprises issued vide our circular RPCD.CO.MSME& NFS.BC.40/06.02.31/2012-2013 dated November 1, 2012, except those relating to Reliefs and Concessions for Rehabilitation of Potentially Viable Units and One Time Settlement, mentioned in the said circular.

The salient features of the Framework are as under:

1. Before a loan account of an MSME turns into a Non-Performing Asset (NPA), banks or creditors should identify incipient stress in the account by creating three sub-categories under the Special Mention Account (SMA) category as given in the Framework

2. Any MSME borrower may also voluntarily initiate proceedings under this Framework

3. Committee approach to be adopted for deciding corrective action plan

4. Timelines have been fixed for taking various decisions under the Framework

4.7 Structured Mechanism for monitoring the credit growth to the MSE sector

Chapter - V

5. Institutional arrangements

5.1 Specialised MSME branches

Public sector banks are advised to open at least one specialised branch in each district. Further, banks have been permitted to categorise their general banking branches having 60% or more of their advances to MSME sector as specialized MSME branches in order to encourage them to open more specialised MSME branches for providing better service to this sector as a whole. As per the policy package announced by the Government of India for stepping up credit to MSME sector, the public sector banks would ensure specialized MSME branches in identified clusters/centres with preponderance of small enterprises to enable the entrepreneurs to have easy access to the bank credit and to equip bank personnel to develop requisite expertise. Though their core competence will be utilized for extending finance and other services to MSME sector, they will have operational flexibility to extend finance/render other services to other sectors/borrowers. Banks may take care to train the officials posted in such branches appropriately.

5.2 Empowered Committee on MSMEs

As part of the announcement made by the Union Finance Minister, Empowered Committees on MSMEs are constituted at the Regional Offices of Reserve Bank of India, under the Chairmanship of the Regional Directors with the representatives of SLBC Convenor, senior level officers from two banks having predominant share in MSME financing in the state, representative of SIDBI Regional Office, the Director of MSME or Industries of the State Government, one or two senior level representatives from the MSME Associations in the state, and a senior level officer from SFC/SIDC as members. The Committee would meet periodically and review the progress in MSME financing as also revival and rehabilitation of stressed Micro, Small and Medium units. It would also coordinate with other banks/financial institutions and the state government in removing bottlenecks, if any, to ensure smooth flow of credit to the sector. The committees may decide the need to have similar committees at cluster/district levels.

5.3 Banking Codes and Standards Board of India (BCSBI)

5.4 Micro and Small Enterprises Sector – The imperative of Financial Literacy and consultancy support

Keeping in view the high extent of financial exclusion in the MSME sector, it is imperative for banks that the excluded units are brought within the fold of the formal banking sector. The lack of financial literacy, operational skills, including accounting and finance, business planning etc. represent formidable challenge for MSE borrowers underscoring the need for facilitation by banks in these critical financial areas. Moreover, MSE enterprises are further handicapped in this regard by absence of scale and size. To effectively and decisively address these handicaps, scheduled commercial banks were advised vide our circular RPCD.MSME & NFS.BC.No.20/06.02.31/2012-13 dated August 1, 2012 that they could either separately set up special cells at their branches, or vertically integrate this function in the Financial Literacy Centres (FLCs) set up by them, as per their comparative advantage. The bank staff should also be trained through customised training programs to meet the specific needs of the sector. Further, Financial Literacy Centres operated by Scheduled commercial Banks have been advised vide our circular FIDD.FLC.BC.No.22/12.01.018/2016-17 dated March 2, 2017 to conduct target specific financial literacy camps, where one of the target groups is small entrepreneurs.

5.5 Cluster Approach

5.6 Delayed Payment

In the Micro, Small and Medium Enterprises Development (MSMED), Act 2006, the provisions of The Interest on Delayed Payment to Small Scale and Ancillary Industrial Undertakings Act, 1998, have been strengthened as under:

1. The buyer has to make payment to the supplier on or before the date agreed upon between him and the supplier in writing or, in case of no agreement, before the appointed day. The period agreed upon between the supplier and the buyer shall not exceed forty-five days from the date of acceptance or the day of deemed acceptance.

2. In case the buyer fails to make payment of the amount to the supplier, he shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or, on the date agreed on, at three times of the Bank Rate notified by Reserve Bank.

3. For any goods supplied or services rendered by the supplier, the buyer shall be liable to pay the interest as advised at (ii) above.

4. In case of dispute with regard to any amount due, a reference shall be made to the Micro and Small Enterprises Facilitation Council, constituted by the respective State Government.

Further, banks are advised to fix sub-limits within the overall working capital limits to the large borrowers specifically for meeting the payment obligation in respect of purchases from MSMEs.

CHAPTER - VI

6. Committees on flow of Credit to MSE sector

Scheduled Commercial Banks may be guided by the contents of the following circulars while extending credit to MSE sector:

6.1 Report of the Committee to Examine the Adequacy of Institutional Credit to SSI Sector (now MSE) and Related Aspects (Nayak Committee)

All scheduled commercial banks were advised vide our circular RPCD.PLNFS.BC.No. 61/06.0262/2000-01 dated March 2, 2001 to implement the Nayak Committee Recommendations.

6.2 Report of the Working Group on Flow of Credit to SSI (now MSE) Sector (Ganguly Committee)

The recommendations of the Committee were communicated to banks for implementation vide circular RPCD.PLNFS.BC.28/06.02.31(WG)/2004-05 dated September 4, 2004.

6.3 Working Group on Rehabilitation of Sick SMEs (Chairman: Dr. K.C. Chakrabarty)

Banks were advised vide circular dated RPCD.SME&NFS.BC.No.102/06.04.01/2008-09 dated May 4, 2009 to consider implementation of the recommendations, inter alia, that lending in case of all advances upto ₹2 crores may be done on the basis of scoring model.

6.4 Prime Minister’s Task Force on Micro, Small and Medium Enterprises

A High-Level Task Force was constituted by the Government of India (Chairman: Shri T K A Nair), in January 2010, to consider various issues raised by Micro, Small and Medium Enterprises (MSMEs). The Task Force recommended several measures having a bearing on the functioning of MSMEs, viz., credit, marketing, labour, exit policy, infrastructure/technology/skill development and taxation. The comprehensive recommendations cover measures that need immediate action as well as medium term institutional measures along with legal and regulatory structures and recommendations for North- Eastern States and Jammu & Kashmir.

Banks are urged to keep in view the recommendations made by the Task Force and take effective steps to increase the flow of credit to the MSE sector, particularly to the micro enterprises. A circular was issued to all scheduled commercial banks vide RPCD.SME&NFS BC.No.90/06.02.31/2009-10 dated June 29, 2010 advising implementation of the recommendations of the Prime Minister’s Task Force on MSMEs.

6.5 [********]²

Appendix

List of Circulars consolidated by the Master Direction

¹ Modified vide Lending to Micro, Small & Medium Enterprises (MSME) Sector (Amendment) Directions, 2026 dated February 09, 2026 and the amendment shall come into force for all loans to MSE borrowers sanctioned or renewed on or after April 01, 2026.

² Deleted vide Lending to Micro, Small & Medium Enterprises (MSME) Sector (Amendment) Directions, 2026 dated February 09, 2026