RBI raises collateral-free loan limit for MSEs

• 10 Feb 2026
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On 9 February 2026, the Reserve Bank of India (RBI) allowed collateral free loans of up to Rs 20 lakh to the units in the Micro and Small Enterprises (MSE) sector. 

In its circular, RBI said, “Banks are mandated not to accept collateral security in the case of loans up to Rs 20 lakh extended to units in the MSE sector. Banks are also advised to extend collateral-free loans up to Rs 20 lakh to all units financed under the Prime Minister Employment Generation Programme (PMEGP) administered by KVIC."

Additionally, the Central Bank has permitted banks to offer loans of up to Rs 25 lakh based on the strong track record and financial health of Micro and Small Enterprise units.

According to the notification, "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 Rs 25 lakh as per their internal policy."

Where applicable, banks can benefit from the Credit Guarantee Scheme. RBI said, "However, accepting gold and silver as collateral pledged voluntarily by borrowers for loans sanctioned by the banks upto the collateral free limit, will not be construed as a violation of the above mandate."

This amendment will take effect for all loans to MSE borrowers that are sanctioned or renewed on or after 1 April 2026. 

Source: Tribune India