Boosting MSMEs: RBI's New Loan Link Strategy

To enhance monetary policy transmission, the RBI instructs banks to connect MSME loans to an external benchmark. Reset periods have been trimmed to three months, while policies provide existing borrowers switchover options. Quality Control Orders include exemptions for MSMEs, ensuring that domestic production is not disrupted. New government schemes and incentives further support MSMEs.

The Reserve Bank of India has directed banks to link loans given to Micro, Small, and Medium Enterprises (MSMEs) to an external benchmark, a move aimed at improving monetary policy transmission. This was revealed during a session in the Indian Parliament.

Under the new system, the reset period for loans has been reduced to three months. To extend benefits of the external benchmark interest regime, existing borrowers will have an option to switch terms as per mutual agreements.

Furthermore, Quality Control Orders (QCOs) are being implemented in phases, with exemptions for MSMEs to avoid disrupting domestic production. Additional financial incentives and credit guarantee schemes have also been announced to aid MSMEs, enhancing their access to loans and reducing financial burdens.

(With inputs from agencies.)