RBI to banks: Treat GST-exempted informal units with Udyam Assist certificate as micro units for priority loans

The Reserve Bank of India (RBI) has informed all financial institutions including banks and NBFCs to treat informal micro enterprises (IMEs) not covered under the Goods and Services Tax (GST) regime or exempted from the CGST Act, 2017, but having the Udyam Assist Certificate (UAC) as micro enterprises for classification under the priority sector lending (PSL) norms.

“IMEs with an Udyam Assist Certificate shall be treated as Micro Enterprises under MSME for the purposes of PSL classification,” the central bank said in a notification on May 9 to all lenders.

The government has clarified to RBI that IMEs are those enterprises which are unable to get registered on the Udyam Registration Portal (URP) due to a lack of mandatory required documents such as Permanent Account Number (PAN) or Goods and Services Tax Identification Number (GSTIN). Hence such enterprises are unable to avail the benefits of government schemes or programmes, RBI said in the notification.

The central bank added that it has been clarified the turnover of enterprises exempted from filing returns under the provisions of the CGST Act, 2017 shall be the sole criterion to be defined as IMEs for the purpose of UAP. Accordingly, IMEs are those enterprises not covered in the GST regime.

Importantly, the MSME ministry’s Development Commissioner Office in an order in December last year, ahead of the launch of the Udyam Assist Platform (UAP) in January this year, had said that the certificate issued on the UAP would be treated at par with Udyam Registration Certificate for IMEs for availing the PSL benefits, FE Aspire had reported.
UAP is essentially a formalisation project by the MSME ministry and SIDBI to bring informal micro units, which don’t have necessary documents such as permanent account number (PAN) or GST identification number, into the formal ambit and enable them access to formal bank credit.
However, promoters of these IMEs are well banked and their transaction history helps banks understand their liquidity and repayment capacity for loans raised. This surrogate data is helpful in providing these units loans.
To register IMEs, UAP requires banks and other financial institutions — known as Designated Agencies (DAs) under this formalisation project — to share data of their IME customers for registration. The platform then validates the data, registers IMEs on the Udyam registration portal, and generates the registration number along with UAC.
According to the data from the Udyam registration portal as of Thursday, out of 1.73 crore MSMEs registered on the portal, 13.32 lakh units were IMEs registered through the assist platform.