RBI Orders No Collateral for MSME Loan ₹20 Lakh
·
Banks
may Ask for Gold Pledge
·
Amendment Issued:
The Reserve Bank of India has notified the Lending to
Micro, Small & Medium Enterprises (MSME) Sector (Amendment) Directions,
2026,
amending the existing MSME lending Master Direction updated on July 23, 2025.
·
Objective of the Changes:
o Strengthen last-mile
credit delivery to Micro and Small Enterprises (MSEs).
o Support enterprises
with limited assets by reducing dependence on collateral.
o Align MSME lending
norms with recent regulatory changes.
·
Key Change – Higher Collateral-Free Limit:
Banks are mandated not to
accept collateral for loans up to ₹20 lakh extended
to MSE units.
·
PMEGP Coverage:
Collateral-free loans up to ₹20 lakh must also be extended to all units
financed under the Prime
Minister Employment Generation Programme (PMEGP) administered
by KVIC.
·
Enhanced Discretion for Banks:
Banks may, based on internal policy and the borrower’s track record and
financial position, waive collateral requirements for loans up to ₹25 lakh.
·
Credit Guarantee Support:
Banks may continue to avail coverage under the Credit Guarantee Scheme, wherever
applicable.
·
Gold and Silver Exception:
Voluntary pledging of gold or silver by borrowers for loans up to the
collateral-free limit will not
be treated as a violation of the collateral-free mandate.
·
Deletion of Provision:
Paragraph 6.5 of the existing Directions has been deleted.
·
Legal Authority:
The amendments are issued under Sections 21 and 35A of the Banking Regulation Act, 1949,
in the public interest.
·
Effective Date:
The amended Directions will apply to all MSE loans sanctioned or renewed on or after April
01, 2026.
·
Overall Impact:
The move is expected to ease credit constraints, encourage formal financing,
and support growth of micro and small enterprises across the country.
RBI Issues
Amendment Directions on Lending to Micro, Small & Medium Enterprises (MSME)
Sector
The Reserve
Bank of India has today issued the Lending to Micro, Small & Medium Enterprises
(MSME) Sector (Amendment) Directions, 2026. These amendment directions modify certain
provisions of the Master Direction - Lending to Micro, Small & Medium Enterprises
(MSME) Sector (Updated as on July 23, 2025).
2. These amendments
have been carried out to (i) enhance the extant Collateral-Free
Loan Limit for Micro and Small Enterprises (MSEs) to ₹20 lakh, and (ii) align
with certain regulatory changes that have been notified separately. The objective
is to strengthen last mile credit delivery for Micro and Small Enterprises with
limited assets to provide as collateral.
3. The amended
Directions shall come into effect from April 01, 2026.
[RBI/2025-26/206 - FIDD.MSME &
NFS.BC.No.12/06.02.31/2025-26 dated February 09, 2026]
Lending to Micro, Small & Medium
Enterprises (MSME) Sector (Amendment) Directions, 2026
Please refer to the Master Direction - Lending to Micro,
Small & Medium Enterprises (MSME) Sector (Updated as on July 23, 2025)
(hereinafter referred to as “the Directions”).
2. On a review, in exercise of the powers conferred by
Sections 21 and 35 A of the Banking Regulation Act, 1949, the Reserve Bank of
India, being satisfied that it is necessary and expedient in the public
interest to do so, hereby, issues the Amendment Directions hereinafter
specified.
3. The Amendment Directions modify the Directions as below:
i. Paragraph
4.1 shall be substituted by the following, namely:-
“4.1 Collateral
a. Banks
are mandated not to accept collateral security in the case of loans up to
₹20 lakh extended to units in the MSE sector. 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.
b. 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.
c. Banks
may avail the benefit of Credit Guarantee Scheme cover, where applicable.
d. 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”.
ii. Paragraph 6.5 shall
stand deleted.
4. The above amendment shall come into force for all loans
to MSE borrowers sanctioned or renewed on or after April 01, 2026.