Lending to Micro, Small and Medium Enterprises

All Scheduled Commercial Banks, are expected to achieve the target of priority sector lending, including small and medium enterprises, under guidelines issued by the Reserve Bank of India (RBI), which is 40% of ANBC (or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher) and/or agriculture target 18% of ANBC (or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher).

No direct penalty is imposed by RBI for non-achievement of such priority sector targets, which also include MSME Sector lending. However, disincentive for non-achievement of priority sector targets/sub-targets is by way of contribution of an allocated amount of shortfall to the RIDF administered by NABARD. This is obligatory for the domestic scheduled commercial banks, including private banks.

For foreign banks, the shortfalls are deposited with SIDBI or funds with other financial institutions as specified by Reserve Bank of India for such purposes as may be stipulated by RBI from time to time. The credit flow to the MSME sector is regularly monitored by the government and forms the agenda for the quarterly meeting of the Finance Minister with CEOs of Public Sector Banks.

This information was given by Minister of State for Finance, Shri Namo Narain Meena in written reply to a question raised in Rajya Sabha.