- The RBI has amended MSME lending rules to raise the collateral-free loan limit for micro and small enterprises to Rs 20 lakh, aiming to improve last-mile credit access. The revised norms will take effect from April 1, 2026.
- Collateral-free loans mandated up to Rs 20 lakh
- Higher limit possible based on track record
- Gold and Silver pledge allowed
- Revisions to master direction on MSME lending
- Alignment with regulatory changes
- Effective date and policy announcement
The RBI has amended MSME lending rules to raise the collateral-free loan limit for micro and small enterprises to Rs 20 lakh, aiming to improve last-mile credit access. The revised norms will take effect from April 1, 2026.
The Reserve Bank of India (RBI) on Monday announced amendments to its lending directions for the micro, small and medium enterprises (MSME) sector, raising the collateral-free loan limit for micro and small enterprises (MSEs) to Rs 20 lakh in a move aimed at improving access to institutional credit for smaller businesses.
Collateral-free loans mandated up to Rs 20 lakh
Under the amended guidelines, banks have been mandated not to accept collateral security for loans up to Rs 20 lakh extended to units in the MSE sector.
Banks have also been advised to extend collateral-free loans up to Rs 20 lakh to all units financed under the Prime Minister Employment Generation Programme (PMEGP), which is administered by the Khadi and Village Industries Commission (KVIC).
Higher limit possible based on track record
According to the new norms, banks may, based on the financial position and good repayment track record of MSE units, increase the collateral-free loan limit up to Rs 25 lakh in line with their internal policies.
In such cases, banks may avail themselves of coverage under the Credit Guarantee Scheme, wherever applicable.
Gold and Silver pledge allowed
The RBI clarified that accepting gold and silver as collateral, when voluntarily pledged by borrowers for loans sanctioned up to the collateral-free limit, will not be considered a violation of the mandate.
Revisions to master direction on MSME lending
The amendments have been made to the Master Direction on Lending to the MSME Sector, which was last updated in July 2025.
According to the central bank, the revised norms are intended to strengthen last-mile credit delivery to micro and small enterprises that often face challenges in offering collateral due to limited asset bases.
Alignment with regulatory changes
In addition to raising the collateral-free loan threshold, the amended directions also align MSME lending guidelines with certain regulatory changes notified separately by the RBI.
The central bank said these measures form part of its broader efforts to improve the flow of institutional credit to the MSME sector, a key driver of employment generation and economic activity.
Effective date and policy announcement
The amended directions will come into effect from April 1, 2026, the RBI said in a press release.
RBI Governor Sanjay Malhotra announced the changes during the monetary policy announcement last Friday. Earlier, Finance Minister Nirmala Sitharaman, in the Union Budget 2026–27, announced that the Self-Reliant India Fund would be topped up by Rs 4,000 crore in 2026–27 to support MSMEs.
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