RBI Updates MSME Classification: New Guidelines for Enterprises

Introduction: The Reserve Bank of India (RBI) has recently issued an important circular, numbered RBI/2023-24/100, addressing the classification of Micro, Small & Medium Enterprises (MSMEs). This communication, dated December 28, 2023, provides updated guidelines for the classification of enterprises falling under the MSME sector.

Detailed Analysis: The circular refers to specific paragraphs (2.4 to 2.7) of the Master Direction – Lending to MSME Sector, originally dated July 24, 2017, with updates as of July 29, 2022. It directs attention to the circular FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21 dated July 2, 2020, which introduced a new definition of MSME. The Ministry of MSME, Government of India, had notified revised criteria through Gazette Notification S.O. 2119 (E) dated June 26, 2020. Further amendments were made on October 19, 2022.

The circular emphasizes that the classification or re-classification of MSMEs is the statutory responsibility of the Ministry of MSME, GoI, in accordance with the provisions of the MSMED Act, 2006. Regulated entities, particularly scheduled commercial banks (excluding RRBs), Small Finance Banks, and Local Area Banks, are instructed to follow the notifications issued by the Ministry of MSME for guidance.

Specific amendments are outlined in the Master Direction, including changes to para 2.2, where enterprises are required to register online on the Udyam Registration portal and obtain the ‘Udyam Registration Certificate.’ For Priority Sector Lending (PSL) purposes, banks should adhere to the classification recorded in the Udyam Registration Certificate (URC).

Additionally, para 2.4 to 2.7 has been deleted, indicating a significant update to the Master Direction.

Conclusion: In conclusion, the RBI’s recent circular brings forth essential changes in the classification of MSMEs. Enterprises are now mandated to register online and obtain the Udyam Registration Certificate, with banks aligning their PSL decisions based on this certification. The circular reiterates the Ministry of MSME’s role in classification matters, underscoring the evolving regulatory landscape for MSMEs in India. Regulated entities are urged to stay informed about further notifications from the Ministry to ensure compliance with the latest guidelines. This development signifies a proactive approach by the RBI in fostering a conducive environment for the growth of the MSME sector.

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Reserve Bank of India

RBI/2023-24/100
FIDD.MSME & NFS.BC.No.13/06.02.31/2023-24

December 28, 2023

The Chairman/ Managing Director/Chief Executive Officer
All Scheduled Commercial Banks (except RRBs)
(including Small Finance Banks and Local Area Banks)

Dear Sir / Madam

Classification of MSMEs

Please refer to para 2.4 to 2.7 of the Master Direction – Lending to Micro, Small & Medium Enterprises (MSME) Sector dated July 24, 2017 (as updated on July 29, 2022), inserted in terms of the circular FIDD.MSME & NFS.BC.No.3/06.02.31/2020-21 dated July 2, 2020 on the new definition of MSME. The revised criteria for classification of enterprises as Micro, Small and Medium enterprises were notified by the Ministry of MSME, GoI vide Gazette Notification S.O. 2119 (E) dated June 26, 2020. Subsequent amendment has been made to the above notification by Government of India (GoI) vide Gazette Notification S.O. 4926 (E) dated October 18, 2022.

2. As classification / re-classification of MSMEs is the statutory responsibility of Ministry of MSME, GoI as per the provisions of the MSMED Act, 2006, regulated entities shall be guided by the notifications issued by the Ministry of MSME in this regard, from time to time.

3. Accordingly, the following amendments are made in the above Master Direction- Lending to Micro, Small & Medium Enterprises (MSME) Sector:

The Master Direction has been updated accordingly.

Yours faithfully

(R Giridharan)
Chief General Manager