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Business News/ Industry / Banking/  RBI asks banks to consider credit guarantee schemes before pricing loans to MSEs
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RBI asks banks to consider credit guarantee schemes before pricing loans to MSEs

The rate of interest should not be less than the bank's base rate, says RBI

The central bank also said while extending credit facilities to MSEs, banks should use a credit scoring model approved by the bank’s board. Photo: MintPremium
The central bank also said while extending credit facilities to MSEs, banks should use a credit scoring model approved by the bank’s board. Photo: Mint

Mumbai: The Reserve Bank of India (RBI) on Tuesday said banks should take into account the benefits of credit guarantee schemes before pricing loans to the micro and small enterprises (MSE).

The scheme, covered by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), allows banks to recoup their losses if a loan goes bad. Because of this guarantee, banks do not have to provide more weight for the loans. A borrower falling in the category of MSE can borrow up to 1 crore.

The guarantee scheme should enable banks to provide cheaper loans to MSE borrowers. However, the rate of interest should not be less than the bank’s base rate, RBI said in a notification on its website.

The central bank also said while extending credit facilities to MSEs, banks should use a credit scoring model approved by the bank’s board.

The central bank had first talked about this in its first bi-monthly monetary policy on 1 April to give a fillip to the flow of credit to MSE borrowers.

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Published: 15 Apr 2014, 04:28 PM IST
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