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RBI Boosts MSME Loans with External Benchmarks
14 Dec
Summary
- RBI mandates linking MSME loans to external benchmarks.
- Banks must offer switchover option to existing borrowers.
- MSMEs receive exemptions and relaxations on Quality Control Orders.
The Reserve Bank of India has mandated that banks link loans for Micro, Small, and Medium Enterprises (MSMEs) to an external benchmark. This move aims to enhance the effectiveness of monetary policy transmission across the financial system. The reset clause for such loans has been shortened to three months under this new external benchmark system.
To ensure accessibility, banks are advised to provide current borrowers with a mutually agreed-upon option to switch to the external benchmark-based interest rate regime. This facilitates broader adoption of the beneficial new interest rate structure.
Furthermore, the government is actively implementing Quality Control Orders (QCOs), introducing necessary exemptions and relaxations specifically for MSMEs. These measures are designed to protect domestic production from potential disruptions, ensuring stability for the sector.
