India: Now, RBI Mandates Linking New Loans to Medium Enterprises to External Ben...

Feb 2020
India, February, 26 2020 - With an aim to strengthen monetary policy transmission, RBI on Wednesday said that all new floating rate loans to the medium enterprises would be linked to the external benchmarks.

The fresh loans extended by banks to medium enterprises from April 1, 2020, would be linked to the benchmarks, RBI said in a statement. “With a view to further strengthening monetary policy transmission, it has now been decided that all new floating rate loans to the Medium Enterprises extended by banks from April 01, 2020, shall be linked to the external benchmarks as indicated in the aforesaid circular”, RBI said.

The RBI linked all new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises (MSEs) extended by banks with effect from October 1, 2019, to external benchmarks.

Meanwhile, the government decided to include non-scheduled urban and district central cooperative banks in three big-ticket schemes to facilitate access to finance for the MSME sector. These schemes include the credit guarantee fund trust for micro and small enterprises, credit linked capital subsidy scheme and interest subvention. The initiative is expected to expand the outreach of the schemes considerably which in turn shall help address the crucial requirement of access to finance of the MSME sector.

“These schemes have been serving the sector but there was a need to take them to next level. Therefore, the ministry has decided to include the non-scheduled urban cooperative banks and district central cooperative banks in the the credit guarantee fund trust for micro and small enterprises; credit linked capital subsidy scheme; and interest subvention scheme,” Union Minister Nitin Gadkari said.


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