RBI Clarifies Gold, Silver Pledges Allowed Under MSE Collateral-Free Limit

The Reserve Bank of India (RBI) has clarified that banks may accept gold and silver pledged voluntarily by borrowers when sanctioning loans to micro and small enterprises (MSEs) within the collateral-free limit, as per news reports.  

The clarification is part of amendments to the central bank’s lending directions for the MSME sector. It comes months after a similar approach was extended to agricultural loans. 

Collateral-Free Limit Set at ₹20 Lakh 

Under the revised norms, banks must provide collateral-free loans of up to ₹20 lakh to all MSE units. The same limit applies to enterprises financed under the Prime Minister Employment Generation Programme (PMEGP), administered by the Khadi and Village Industries Commission.  

The changes will apply to all loans sanctioned or renewed on or after April 1, 2026. 

Clarification on Voluntary Pledges 

The RBI said that accepting gold or silver pledged voluntarily by borrowers for loans within the collateral-free threshold will not be treated as a breach of the rules.  

The clarification addresses earlier uncertainty among banks on whether such pledges would violate the collateral-free requirement. 

The amendment also removes certain earlier restrictions under the previous lending directions. This is intended to bring greater consistency in how banks extend credit to micro and small enterprises. 

Option to Raise the Limit 

Banks may, based on a borrower’s credit history and financial position, increase the collateral-free loan limit up to ₹25 lakh in line with their internal policies. They may also use the Credit Guarantee Scheme for eligible loans to manage risk. 

The revised directions amend the RBI’s master guidelines on lending to the MSME sector, which were last updated in July 2025. The changes form part of plans to improve credit flow to smaller businesses. 

Read More: RBI Scraps Prior Approval for Gold-Loan NBFC Branch Expansion! 

Conclusion 

The updated rules retain the collateral-free structure while allowing voluntary pledges of precious metals within the prescribed limits. The amendments will come into effect from April 2026. 

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