RBI Plans to Raise Collateral-Free MSME Loan Limit to ₹20 Lakh

The Reserve Bank of India (RBI) has proposed increasing the collateral-free loan limit for micro, small, and medium enterprises (MSMEs) from ₹10 lakh to ₹20 lakh. The proposal is aimed at easing credit access for smaller units that often do not have assets to offer as security.  

A higher ceiling could allow more businesses to approach banks instead of turning to informal borrowing channels. 

Repo Rate Held at 5.25% 

In its latest policy decision, the Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.25%. The central bank retained a neutral stance, indicating no immediate shift in policy direction. This follows cumulative rate cuts of 1.25 percentage points during 2025. 

Liquidity Operations Continue 

The RBI has continued liquidity support through Open Market Operations (OMO) and Variable Rate Repo (VRR) auctions.  

These measures are meant to keep adequate funds in the banking system and improve the flow of credit. The central bank has also emphasised the need for effective transmission of earlier rate cuts. 

What It Means for MSMEs 

The proposed increase in the collateral-free loan limit may help more micro and small businesses access institutional credit.  

Many such units face difficulty in securing loans due to the lack of pledged assets. A higher limit could support working capital needs and routine business expenses. 

Read More: Centre Set to Approve Fresh ECMS Proposals with Investments of ₹11,150 Crore! 

Conclusion 

The proposal to double the collateral-free loan cap forms part of the RBI’s broader credit and liquidity approach. If implemented, it may widen formal credit access for MSMEs while the policy rate remains unchanged. 

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