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Interest Subvention Scheme for MSMEs: RBI includes Co-op Banks as lending institution [Read Circular]

Interest Subvention Scheme - MSMEs - RBI - Co-operative Banks - lending institution - Taxscan

The Reserve Bank of India (RBI) has allowed co-operative banks including urban cooperative banks to avail Interest Subvention Scheme for micro, small and medium enterprises (MSMEs), which was earlier restricted to Commercial banks alone.

In a move that will provide relief to COVID-19 hit MSME, The scheme provides for an interest relief of 2% per annum to eligible MSMEs on their outstanding fresh/incremental term loan/working capital during the period of its validity.

The coverage of the Scheme is limited to all term loans / working capital to the extent of Rs 100 lakh.

In a communication to MDs and CEOs of co-op banks, the RBI says that “Government of India, Ministry of Micro, Small and Medium Enterprises (MSMEs) had announced the ‘Interest Subvention Scheme for MSMEs 2018’ on November 2, 2018 for Scheduled Commercial Banks. The Government of India has since decided to include Co-operative Banks also as Eligible Lending Institutions effective from March 3, 2020.”

It would allow participation of the co-op banking sector in the MSME businesses with greater vigour and zest, reacted co-operators on the development underlining that the parity of co-op banks with commercial cousins is a welcome step.

The interest subvention scheme was first announced in November 2018 for scheduled commercial banks and was to be under effect until the end of FY2020, spanning two financial years Financial Year 2018-19 and Financial Year 2019-20.

However, keeping in view the COVID-19 pandemic which broke out in the last leg of the financial year, the government decided to extend the scheme to loans given to MSMEs by co-operative banks too, who became eligible lending institutions effective from March 3, 2020.

The loan accounts on the date of filing claim should not have been declared as NPA as per the extant guidelines in force. No interest subvention shall be admissible for any period during which the account remains NPA.

The validity of the scheme has been extended till March 31, 2021. Accordingly, fresh or incremental term loan or working capital limit extended by co-operative banks with effect from March 3, 2020 will be eligible for coverage under the scheme.

Acceptance of claims in multiple lots for a given half-year by eligible institutions is permitted, clarifies RBI note.

Small Industries Development Bank of India (SIDBI) is the single national level nodal implementation agency for the scheme. Nodal offices of eligible lending institutions should submit their half yearly claims to SIDBI in the enclosed formats as per the guidelines for claim submission provided in the scheme, the note reads.

Co-operative Banks may take appropriate action as envisaged in the guidelines and issue necessary instructions to their branches / controlling offices for successful implementation of the scheme, the RBI note signed by its CGM Neeraj Nigam reads.

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