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SMEs MSMED Act 2006 & New Definition.

In the year 2005 RBI gave its first definition of SME. According to that definitionSMEs comprised of Small & Medium Industries with investment in plant &machinery up to Rs.10 Crores. At that time SMEs virtually comprised of manufacturing sector with the only exception of Small Scale Service & BusinessEnterprises (SSSBE) coming under the service sector. SSSBE was a component of SSI but it was confined to a few industry related services. Again the ceiling oninvestment in equipments for SSSBE was just Rs.10 L. Because of these reasons,majority of SME loans comprised of manufacturing sector only. (Please refer Bulletin 44/2005 Part II for details).

Change in Statutory & RBI definition of SMEs.

The above definition of RBI was issued in absence of any legislation. But the Parliamentenacted the Micro, Small & Medium Enterprises Development Act 2006 (MSMED Act2006) and the same has been notified vide Gazette Notification No. S.O.1154 (E) dated18.07.2006 and has come into effect from 02 October, 2006.

MSMED Act 2006 & SME Definition.

CATEGORYSECTOR

Manufacturing. Services.

Micro EnterpriseThe investment in Plant &Machinery (original cost) does notexceed Rs.25 Lakhs.

The investment in equipmentdoes not exceed Rs. 10Lakhs.

Small EnterpriseThe investment in Plant &Machinery (original cost) is morethan Rs.25 Lakhs but does notexceed Rs. 500 Lakhs.

The investment in equipmentis more than Rs.10 Lakhs butdoes not exceed Rs. 200Lakhs.

Medium

Enterprise

The investment in Plant &Machinery (original cost) is more

than Rs.500 Lakhs but does notexceed Rs. 1000 Lakhs.

The investment in equipmentis more than Rs.200 Lakhs

but does not exceed Rs.500Lakhs.

Please note that all the investment ceilings are excluding Land & Building. So alsothe investment in Pollution Control, Research & Development and Industrial SafetyDevices etc for the manufacturing sector and furniture & other items not directlyrelated to the service rendered for the service sector, need not be reckoned for calculation of investment.

Investment means original cost of plant & machinery in the case of manufacturingsector & original cost of equipments in the case of service sector and please note

that it is not the depreciated value or book value.

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RBI vide their circular RPCD. No. Plan. BC. 84 / 04.09.01/ 2006-07 dated 30 April, 2007has come out with the revised guidelines on Priority Sector Lending, according to whichthe Micro & Small Enterprises come under Priority Sector .

With the above changes in the statutory definition, Micro & Small Enterprises Manufacturing has replaced the existing definition of SSI & Micro & Small Enterprises Service has replaced the existing definition of SSSBE. Our Bank also has shifted to thestatutory definition of SMEs.