Surge in Bank Funding and Government Initiatives Facilitate Access to Affordable Credit

In September, scheduled commercial banks increased their deployment of funds to micro, small, and medium enterprises (MSMEs) under priority sector lending to Rs 21.69 lakh crore, a 17.2% rise from the previous year. Obtaining business loans is challenging for small enterprises due to perceived high risk, with interest rates often exceeding 10%, along with processing fees. The government aims to facilitate MSME access to finance by designating lending to them as eligible for priority sector advances. According to the Reserve Bank of India (RBI), banks are required to lend 7.5% of their Adjusted Net Bank Credit to microenterprises under priority sector lending.

The RBI advises linking MSME loans to an external benchmark for interest rates. Udyam registration is mandated for MSME borrowers to access credit under priority sector lending norms, enabling them to benefit from subsidized interest rates through schemes like CGTMSE, Mudra Yojana, and PMEGP. Enterprises with Udyam registration may access cheaper bank loans at rates approximately 1.5% lower than regular loans, starting from around 8.75% per annum. In September, banks deployed Rs 21.69 lakh crore to MSMEs, accounting for 14.3% of India's non-food credit, reflecting a 17.2% increase from the previous year.