An eight-member expert committee, constituted by the Reserve Bank of India, has reportedly suggested eliminating the requirement for collateral to avail loans (collateral-free business loans) of up to Rs. 20 lakhs for the MSMEs. Notably, the current ceiling for the unsecured loans is Rs. 10 lakhs (notified in the regulator’s circular for July 1, 2010).

The committee was set up in January this year under the chairmanship of former SEBI (Securities and Exchange Board of India) chairman Mr. U K Sinha to recommend long-term measures for the financial stability of the MSMEs in the country. The MSME sector counts to approximately 7 percent of the country’s GDP, and it employs more than 115 million people.

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As of now, MSMEs can avail an unsecured business loan of up to Rs. 10 lakh. It is worth mentioning that this RBI panel’s recommendations come at the time when the unemployment rate in the country is high (four-decade high), as per a report.

The RBI committee has suggested covering MUDRA and SHG loan schemes of the government under the amended circular. For now, MUDRA loan offers three types of loans, SHISHU loans (up to Rs. 50,000), KISHOR loans (from Rs. 50,000 to Rs. 5 lakhs) and TARUN loans (from Rs. 5,00,000 to Rs. 10,00,000). If the suggestion is accepted, the loan limit will not only be doubled but more beneficial for MSMEs.

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In FY 2018-19, the total number of MUDRA loans accounted for Rs. 17.80 crore. The sanctioned amount was more than the amount Rs. 9.26 lakh crore. It is estimated that there are 2.6 crores MSMEs in the country which are employing more than six crore individuals. These MSMEs contribute 45% to the country’s manufacturing sector and 40% to the export.

Working Capital Loan

Out of all the problems faced by the MSME sector in India, not getting access to formal funding at reasonable interest rates is one of the biggest ones. Hence, if this recommendation is accepted, it will be a good move by the government to encourage and promote the MSME sector.

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Source: Business Today