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Directions have been issued by the RBI in the name of lending to MSME Sector Directions 2017. The provisions of the directions shall apply to every scheduled commercial banks licensed to operate in India by the RBI. In this article, we shall discuss loans to MSME and priority sector.
The MSMED Act was enacted on June 16, 2006. Subsequently, the RBI issued a circular and notified the changes. It has been adopted for the purposes of bank credit there was a paradigm shift that took place, i.e., the inclusion of the services sector in MSME definition apart from extending the scope to medium enterprises.
Now, manufacturing as well as services is eligible for bank finance.
Manufacturing enterprises-
Manufacturing enterprises means enterprises engaged in the manufacture/production of goods as provided below:
Service enterprises-
Enterprises that are engaged in providing/rendering services and whose investment in equipment are as specified below (original cost excluding land and building, fittings, and other items not related directly to the service rendered):
Auditor must check-
Further, the MSME ministry clarified that to ascertain the investment in plant and machinery for classifying an enterprise as Micro, Medium or Small, one can rely on the following documents:
This covers the agriculture and the MSME sector. Therefore export credit under agriculture and MSME sector also fall under PSL in the respective categories. The export credit includes pre-shipment and post-shipment export credit as provided in Master Circular on Rupee/Foreign Currency Export Credit and Customer Service to Exporters issued by the Department of Regulation.
Loans to individuals for education, including vocational courses, not more than 20 lakh rupees are eligible for priority sector classification.
During the bank audit, the auditor may be required to perform a number of examinations to ascertain certain facts. The above mentioned points are some of the essential to-dos for an auditor. This article intended to decode the loans to MSME and priority sector.
Read our article:All about the AEO Package for MSME
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