In a move aimed at boosting credit flow to the Micro and Small Enterprises (MSE) sector, the Ministry of Cooperation has recently urged Urban Cooperative Banks (UCBs), State Cooperative Banks (StCBs), and District Central Cooperative Banks (DCCBs) to register themselves as Member Lending Institutions (MLIs) under the Credit Guarantee Scheme (CGS) of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
The appeal follows a significant rationalization of eligibility norms for cooperative banks to register as MLIs, effective from February 28, 2025. The move is expected to enhance the participation of cooperative banks in lending to the MSE sector by easing earlier restrictions.
As per the revised criteria communicated by the Ministry, cooperative banks are now eligible for registration if they have Gross NPAs of up to 7%, as opposed to the earlier cap of 5%.
Further, banks are now required to have reported net profit in at least two out of the last three financial years, a relaxation from the earlier norm of continuous profit for three years. Importantly, the requirement for Scheduled UCBs to maintain Demand and Time Liabilities (DTL) of Rs 750 crore continuously for one year has now been scrapped, opening the doors for many mid-sized and smaller banks to come on board.
Currently, 115 cooperative banks are registered with CGTMSE as MLIs, comprising 15 Scheduled UCBs and 100 other cooperative banks such as State Cooperative Banks, Non-Scheduled UCBs, and DCCBs. CGTMSE has confirmed that there are no pending applications, and that all fresh applications will be processed promptly under the new norms.
By allowing more cooperative banks to access the CGTMSE framework, the government aims to increase the availability of collateral-free credit to small and micro businesses, thereby promoting entrepreneurship, job creation, and inclusive economic growth across the country.
The Ministry has strongly encouraged all eligible cooperative banks to seize this opportunity and strengthen their role in India’s evolving credit ecosystem, especially at the grassroots level.
The original communication in this matter states:… “that eligibility criteria for registration of Cooperative Banks as Member Lending Institutions (MLIs) under Credit Guarantee Scheme (CGS) of CGTMSE have been rationalized with effect from 28.02.2025. The letter also mentions revised criteria including requirement of Gross NPAs of 7% or less which was earlier 5% or less.
In this context, all the cooperative Banks are requested to register themselves as MLI under Credit Guarantee Scheme of CGTMSE which will enable them to more effectively engage in lending activities to the MSE Sector thereby promoting economic growth and facilitating job creation in the country.”
