RBI Raises Collateral-Free Loan Limit For MSEs To Rs 20 Lakh

New Delhi, Feb 10 (KNN) The Reserve Bank of India (RBI) has increased the limit for collateral-free loans to micro and small enterprises (MSEs) to Rs 20 lakh, under the Lending to Micro, Small & Medium Enterprises (MSME) Sector (Amendment) Directions, 2026 issued on Monday. 

The revised norms will come into force from April 1, 2026.

The changes amend the existing Master Direction on MSME lending and are aimed at improving access to formal credit for smaller enterprises that often lack assets to offer as collateral.

Under the amended framework, banks have been directed not to seek collateral security for loans of up to Rs 20 lakh extended to MSE units. 

The same collateral-free limit will apply to beneficiaries covered under the Prime Minister Employment Generation Programme (PMEGP), which is implemented by the Khadi and Village Industries Commission.

Welcoming the move, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME), Anil Bhardwaj said that the enhancement was overdue.  

“The threshold of Rs 10 lakh was fixed more than a decade ago and inflation adjustment necessitated the upward revision to at least Rs 20 lakh”, he added.  

Banks may further relax collateral requirements for loans of up to Rs 25 lakh for MSEs with a satisfactory repayment record and sound financial position, subject to their internal credit policies. In such cases, lenders may continue to avail of credit guarantee cover, where applicable.

The RBI clarified that voluntary pledging of gold or silver by borrowers for loans within the collateral-free limit will not be treated as a violation of the norms. An earlier provision related to this issue has been removed from the master directions.

The revised norms will apply to all loans to MSE borrowers that are sanctioned or renewed on or after April 1, 2026. The directions are applicable to all scheduled commercial banks, excluding regional rural banks.

According to the RBI, the amendments are intended to strengthen last-mile credit delivery to micro and small enterprises and align MSME lending norms with recent regulatory changes.

(KNN Bureau)