As of my last update in September 2021, the Banking Codes and Standards Board of India (BCSBI) had formulated a separate “Code of Banks’ Commitment to Micro and Small Enterprises (MSEs).” This code is designed to address the specific needs and concerns of Micro and Small Enterprises (MSEs) in India and ensure fair treatment and transparent banking practices for this sector. Here are the key aspects of the Code of Banks’ Commitment to Micro and Small Enterprises:
- Applicability: The code is applicable to all scheduled commercial banks in India concerning their dealings with Micro and Small Enterprises (MSEs). MSEs are defined based on their investment in plant and machinery or equipment, as per the definition provided by the Government of India’s Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006.
- Transparent and Timely Information: Banks are required to provide clear and timely information to MSEs about their various loan products, services, terms, and conditions. The code emphasizes transparency in communication to ensure that MSEs have a clear understanding of the features and costs associated with the financial products they avail.
- Loan Application Process: The code outlines the procedures for loan applications from MSEs, including documentation requirements and timelines. Banks are expected to communicate the status of loan applications promptly and provide reasons for rejection, if any.
- Reasonable Time for Decision Making: Banks commit to making decisions on MSE loan applications within a reasonable timeframe. Delays in decision-making may hinder the business operations of MSEs, and the code aims to address this issue.
- Interest Rates and Charges: The code lays down guidelines for the computation and communication of interest rates and charges related to loans and other banking services provided to MSEs. The aim is to ensure that interest rates and charges are communicated transparently and are not excessive.
- Collateral Requirements: The code emphasizes that banks should not insist on collateral security for credit limits up to a certain threshold, as prescribed by the Reserve Bank of India (RBI) or the Government of India.
- Fair Practices for Loan Recovery: The code outlines fair practices for the recovery of MSE loans. Banks are encouraged to adopt non-coercive methods for loan recovery and treat MSEs with respect and empathy while pursuing recovery efforts.
- Complaint Redressal Mechanism: Banks are required to establish an effective grievance redressal mechanism to handle complaints and grievances of MSEs. The code ensures that MSEs have access to a transparent and efficient process for resolving disputes.
- Customer Education and Awareness: The code emphasizes the need for customer education and awareness programs to help MSEs understand banking products, services, and their rights and responsibilities as customers.
- Review and Compliance: Similar to the general Code of Banks’ Commitment to Customers, the Code of Banks’ Commitment to Micro and Small Enterprises is subject to periodic review by BCSBI. Banks are expected to comply with the code’s provisions and adopt industry best practices in their dealings with MSEs.
The Code of Banks’ Commitment to Micro and Small Enterprises aims to promote financial inclusion, fair treatment, and transparent banking practices for MSEs in India. It seeks to provide a supportive and enabling environment for MSEs to grow and contribute to the country’s economic development.
As my information is up to September 2021, I recommend checking the official website of BCSBI or referring to the latest regulatory guidelines from the Reserve Bank of India for the most current and detailed information on the Code of Banks’ Commitment to Micro and Small Enterprises.