MSME Loan Repricing: Banks Told to Use External Benchmarks
Why in the news
Parliament was told that banks are advised to price MSME loans off an external benchmark, so rate changes pass through faster, with some Quality Control Order (QCO) relief for MSMEs.
Key facts
- Benchmark: such as the repo rate or another bank-specified benchmark.
- Reset clause: reduced to three months.
- Switch: offered to existing borrowers.
| QCO relaxation | Detail |
|---|---|
| Extra time | Micro: 6 months; small: 3 months |
| Imports | Allowed for export-oriented makers; up to 200 units for R&D |
| Old stock | Clear within 6 months of the effective date |
Objectives
- Better monetary policy transmission and lower borrowing costs.
- Avoid disruption of domestic MSME production.
Exam angle
- QCOs are phased in by line ministries via BIS.
- Reset period: three months.