The Reserve Bank of India (RBI) on Monday asked banks not to insist on collateral security for loans up to ₹20 lakh extended to units in the micro, small enterprises (MSE) sector.
“Banks are also advised to extend collateral-free loans up to ₹20 lakh to all units financed under the Prime Minister Employment Generation Programme (PMEGP) administered by KVIC,” the RBI said in its Lending to Micro, Small & Medium Enterprises (MSME) Sector (Amendment) Directions, 2026.
“Banks may, on the basis of good track record and financial position of the MSE units, increase the limit to dispense with the collateral requirement for loans up to ₹25 lakh as per their internal policy,” the banking regulator said and added that banks may avail the benefit of credit guarantee scheme cover, where applicable.
“However, accepting gold and silver as collateral pledged voluntarily by borrowers for loans sanctioned by the banks up to the collateral free limit, will not be construed as a violation of the above mandate,” the RBI said in the circular.
“With a view to facilitate improved access to formal credit, support entrepreneurial activity and strengthen last mile credit delivery for MSEs with limited collateral, it has been decided to enhance the limit of collateral free loans to MSEs from ₹10 lakh to ₹20 lakh,” RBI Governor Sanjay Malhotra said while making a statement on development and regulatory policies on Friday.
The amendment will come into force for all loans to MSE borrowers sanctioned or renewed on orafter April 1, 2026.
Published – February 09, 2026 08:06 pm IST
