RBI allows collateral-free loans up to ₹25 lakh for MSEs with strong track record

The Reserve Bank of India (RBI) has amended its lending norms for micro and small enterprises, allowing banks to extend collateral-free loans of up to ₹25 lakh to eligible units on the basis of their good track record and financial position.

In a notification issued on Monday, the RBI said banks are mandated not to seek collateral security for loans up to ₹20 lakh extended to Micro and Small Enterprises (MSEs).

“Banks are mandated not to accept collateral security in the case of loans up to ₹20 lakh extended to units in the MSE sector,” the notification stated.

“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,” it added.

According to the RBI, banks can also avail the benefit of credit guarantee scheme cover, where applicable.

Clarifying the operational framework, the RBI said acceptance of gold and silver pledged voluntarily by borrowers for loans sanctioned up to the collateral-free limit will not be treated as a violation of the mandate.

The amendment comes days after Reserve Bank Governor Sanjay Malhotra announced enhancing the limit of collateral-free loans to MSEs from ₹10 lakh to ₹20 lakh.

"The provisions would be applicable to all loans to MSE borrowers sanctioned or renewed on or after April 1, 2026. Instructions in this regard will be issued shortly," he Malhotra on last Friday, while announcing the last bi-monthly monetary policy decisions of the current financial year.

On the need for the amendments, the RBI said the objective is to strengthen last-mile credit delivery for Micro and Small Enterprises with limited assets to provide as collateral.

The revised norms will apply to all loans to MSE borrowers sanctioned or renewed on or after April 1, 2026, the RBI said.