RBI Enhances Collateral Free Loan Limit for MSEs Up to ₹20 Lakh

The Reserve Bank of India has amended its MSME lending directions to widen access to unsecured credit for micro and small enterprises and strengthen formal credit penetration. 

Revised Limits Under Amended MSME Directions 

As per news reports, Under the Lending to Micro, Small & Medium Enterprises Sector (Amendment) Directions, 2026, the RBI said, “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 central bank added, “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,” and noted that banks may avail credit guarantee scheme cover where applicable. 

Regulatory Clarifications and Policy Intent 

The RBI clarified in its circular, “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.” 

Explaining the policy intent, RBI Governor Sanjay Malhotra said, “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.” 

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

Conclusion 

The amended directions will apply to all loans to MSE borrowers that are sanctioned or renewed on or after April 1, 2026, as per the RBI. 

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