RBI has deregulated the interest rate on advances and these interest rates are determined by banks with the approval of their respective Board of Directors subject to extant guidelines of RBI. Loans to Micro, Small and Medium Enterprises (MSMEs) are provided as per the interest rate structure of the bank. The interest rate is finalized based on various factors which inter-alia include, cost of funds to the institution, credit rating of the unit, tenure of loan, purpose of loan etc.

The rating of MSEs under erstwhile Performance & Credit Rating Scheme of the Ministry of Micro, Small and Medium Enterprises to provide a third party opinion on their capabilities and creditworthiness so as to create awareness amongst them about the strengths and weakness of their existing operations has been discontinued w.e.f  December, 2018.

Further, under the Interest Subventions Scheme for Incremental Credit to MSMEs 2018 offers 2% interest subvention on fresh or incremental loans upto ₹ 1 crore to MSMEs.

This information was given by Shri Nitin Gadkari, Union Minister for Micro, Small and Medium Enterprises in written reply to a question in Lok Sabha today.

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RCJ/SKP/JK

Interest Rate Deregulation - banks set MSME loan pricing with Board approval; interest subvention lowers effective borrowing costs. Interest rate deregulation allows banks to set lending rates with Board approval subject to RBI guidelines, based on factors including cost of funds, borrower credit rating, tenor and purpose. The Performance & Credit Rating Scheme for MSEs was discontinued in December 2018. Separately, the Interest Subventions Scheme for Incremental Credit to MSMEs, 2018, provides a 2% interest subvention on fresh or incremental loans to eligible MSMEs, reducing effective borrowing costs for qualifying incremental credit.