Summary of this article
Banks have been advised to link MSME loans
Three month reset will enable quicker interest rate transmission
Existing borrowers offered switchover to benchmark based system
The Reserve Bank of India (RBI) has advised banks to link loans extended to micro, small and medium enterprises (MSMEs) to an external benchmark, the government informed Parliament on December 15, 2025. The move is aimed at facilitating effective monetary policy transmission to bring about quicker reflection of interest rate changes in the lending rates for borrowers.
Under the external benchmark system, the reset period for MSME loans has been reduced to three months. This means that the interest rates on such loans can be revised every three months in line with changes in the benchmark, thereby enabling borrowers to benefit faster when rates come down.
External Benchmark And Switchover Option
Banks have also been advised to provide switchover facility to existing borrowers from older interest rate regime to external benchmark based system on mutually agreed terms, so that the existing borrowers are not left behind. This step is aimed to extend the benefits of transparent and predictable interest rates to a wider set of MSME borrowers, the government said.
Quality Control Orders and MSME Relaxations
In a written reply to Lok Sabha, Minister of State for Micro, Small and Medium Enterprises, Shobha Karandlaje said that the government is implementing Quality Control Orders (QCOs) in a phased manner. These orders are issued by ministries and implemented through the Bureau of Indian Standards (BIS) under the Department of Consumer Affairs.
A number of exemptions and relaxations have been given specifically to MSMEs to prevent disruption in domestic production. Micro enterprises have been given a six-month extension to comply with QCOs, and small enterprises have been given an additional three months’ time.
Import, R&D, And Legacy Stock Exemptions
The relaxations also extend to imports by domestic manufacturers for the purpose of producing export-oriented goods. Besides, MSMEs are permitted to import up to 200 units for research and development (R&D) purposes. There is also a provision to clear legacy stock that was manufactured or imported before the implementation of QCOs. Such stock can be sold within six months from the effective date of the order.
BIS Incentives and Other Support Measures
The Bureau of Indian Standards (BIS) provides financial incentives to MSMEs by offering concession on annual minimum marking fees. Micro enterprises get an 80 per cent concession, small enterprises 50 per cent and medium enterprises 20 per cent. Additional concession of 10 per cent is available to MSMEs located in the northeast and for units run by women entrepreneurs. The requirement for maintaining in-house laboratory has also been made optional for the MSME units.
Credit Support and Collateral Relief
The government has also announced the Mutual Credit Guarantee Scheme for MSMEs and will provide credit guarantees to assist units in securing loans for equipment and machineries. Besides, all scheduled commercial banks (SCBs) have also been directed not to demand collateral security for loans up to Rs 10 lakh extended to micro and small enterprises.
