Micro, Small and Medium Enterprises (“MSME”) are indeed major contributors to the growth of the economy. It is indeed for this reason the Government of India has prioritized the growth of MSME as a part of the Atmanirbhar Bharat Program. Accordingly, it has introduced various incentives and subsidies for MSMEs.

In order to provide financial assistance to MSMEs, the Government of India has launched the scheme of “Interest Subvention Scheme for MSMEs 20181”. Initially, the said scheme was formulated only for scheduled commercial banks. But now in order to enable wider access to finance the Government of India has included co-operative banks within the ambit of this scheme. Accordingly, the RBI has introduced the scheme of Interest Subvention vide its notification dated October 7, 20202. The new modified guidelines are as follows:

  • The validity of the Interest subvention scheme has been extended till 31st March 2021 and it now encompasses co-operative banks for the outstanding or fresh or incremental term loan/working capital limit extended to MSMEs.
  • Claim by eligible institutions will be accepted in multiple lots for a given half-year.
  • The Udyog Aadhaar Number (UAN) may be provided for those enterprises which come under the purview of GST. However, if the entity does not come under the purview of GST, it may either submit Income Tax Permanent Account Number (PAN) or their loan account must be categorized as MSME by the bank.
  • Trading activities are also allowed under the interest subvention scheme without UAN.

What Is Interest Subvention Scheme?

An interest subvention scheme is a scheme introduced by the Reserve Bank of India wherein relief is provided upto 2 per cent of interest to all the legal MSMEs on their outstanding fresh/incremental term loan/working capital during the period of its validity. The range of the scheme to working capital/term loan is limited to the extent of 100 lakhs. In order to claim relief under this scheme, the amount of the loan should not be declared as Non-Performing Asset (NPA) at the date of filing of the claim amount.

Objective Of The Interest Subvention Scheme

The said scheme was formulated with the following objectives:

  • To increase productivity in both manufacturing and service enterprises.
  • To provide incentives to MSMEs for onboarding on GST in order to encourage the growth in the economy thereby enabling the reduction in the cost of credit to the MSMEs.

Eligibility For The MSMEs In Order To Avail Relief Under This Scheme

An MSME in order to avail eligibility under this scheme should fulfill the following criteria:

  • MSME's should have a valid Udyog Aadhaar Number(UAN) and Valid GSTIN Number.
  • Incremental term loan or fresh term loan or incremental term should have been availed by MSMEs during FY 2 November 2018 to FY 2021.
  • The term loan or working capital should have been sanctioned by scheduled commercial banks and Co-operative Banks(as per modified guidelines).
  • The MSMEs should have availed term loan only upto Rs. 100 lakh.

Operational Guidelines For The Scheme

  • The relief on interest will be provided by eligible lending institutions at the rate of 2 per cent per annum on the incremental or fresh amount of working capital or new term loans, on the outstanding balance from time to time, either from the date of disbursal or the date of notification of this scheme, whichever is later.
  • The interest rates charged to MSMEs should be in consonance with the code of ethics and fair Practices code as produced by respective institutions and later on linked to the internal or external rating of the MSME as per the eligible interest rate guidelines of the institution.
  • On the date of filing of the claim, the loan accounts should not have been declared as Non- Performing Asset (NPA). In the period, in which the accounts remain NPA, no interest subvention shall be granted or permissible to granted.

 Who Can Submit Claims?

  • Nodal office of the respective lending institution should submit its half-yearly claims to SIDBI3 as in the format prescribed by the Reserve Bank of India.
  • Data pertaining to loans disbursed and interest relief claims should be submitted in the soft copy of the excel sheet by lending institutions.
  • The claims made by eligible MSMEs should be certified by statutory auditors.
  • The Chief General Manager, Institutional Finance Vertical, SIDBI, Mumbai will be the appropriate authority to submit the half-yearly claims.
  • Payment to an individual institution against each claim shall be given after the availability of funds from MoMSME4.

What Are The General Guidelines Of The Scheme?

  • SIDBI is appointed as a nodal agency for the purpose of channelizing interest subvention to the various lending institutions.
  • The lending institutions shall be responsible for the submission of accurate data and monitoring of the scheme.
  • The claim for interest subvention will be accepted only when it is duly certified by auditors of lending institutions. However, the SIDBI will not be held liable for inaccuracies on the claims submitted by lending institutions
  • The MSMEs can avail the amount from interest subvention only if the funds are available to the government. Further., MoMSME and the GOI5 are considered as the final authority for all interest subvention related matters and their decision will be final and binding. The funds received by the eligible institutions under this are treated as Utilization Certificate of the Fund.


The Interest Subvention Scheme indeed boosts the growth of MSMEs in India. Further with the inclusion of co-operative banks, it widens the access to credit for the MSMEs. This in turn also leads to growth in Co-operative Banking Sector because even these banks have a smaller customer base. Moreover, these industries usually prefer co-operative banks over scheduled commercial banks. However, at the same time, we cannot deny the fact that the success of this scheme depends upon the extent of awareness created among MSMEs and also the utilization of this opportunity.


1 https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT129A2872B20E19E45EBB36EF57D663A44F1.PDF


3 Small Industries Development Bank of India

4 Ministry of Micro, Small and Medium Enterprises

5 Government of India

Originally Published by King, Stubb & Kasiva, December 2020

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