RBI MPC: MSMEs to get collateral-free loans of up to ₹20 lakh starting April 1

Reserve Bank Governor Sanjay Malhotra on Friday, February 6, announced an increase in the limit of collateral-free loans to MSEs, doubling it from ₹10 lakh to ₹20 lakh. The move is aimed at providing improved access to formal credit for MSMEs and supporting entrepreneurial activity by strengthening last-mile credit delivery. 

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

The new ₹20 lakh limit will apply to all loans (sanctioned or renewed) to micro and small enterprise (MSE) borrowers from April 1, 2026.

Commenting on this, Home Credit India CEO Vivek Singh said, “The increase in the collateral-free loan limit for MSMEs to ₹20 lakh is particularly meaningful for micro-entrepreneurs and small businesses, as it broadens access to affordable credit and enables income-generating opportunities at the grassroots level. Alongside measures aimed at deepening financial inclusion and improving liquidity transmission, these steps will encourage responsible borrowing, support consumption, and strengthen the resilience of India’s retail and MSME credit ecosystem.” 

Governor Malhotra said that MSMEs are very important to the country’s economy, especially for employment generation. 

In the Union Budget 2026, FM Sitharaman announced a ₹10,000-crore growth fund for the MSME sector, emphasising growth and improved access to credit for small businesses. 

“The RBI’s decision to keep the repo rate unchanged at 5.25%, while continuing with a neutral stance, reflects a balanced approach. The proposal to increase collateral-free loan limits for MSMEs to ₹20 lakh is a positive step and will provide much-needed liquidity support to small businesses that often struggle to offer traditional collateral,” said Sundeep Mohindru, Founder & Promoter, M1xchange. 

“This move also follows the Union Budget announcement of a ₹10,000-crore growth fund for the MSME sector, reinforcing the focus on improving access to credit. The continued emphasis on timely and mandatory payments to MSMEs through platforms like TReDS highlights the importance of transaction-based financing to improve cash flows and ensure faster and more efficient credit access for MSMEs,” Mohindru added. 

Speaking about Business Correspondents, the Governor said that they have been functioning as critical enablers of last-mile access to financial services, especially in underserved, rural and remote locations.

The Reserve Bank had set up a committee, consisting of officials from the RBI, Department of Financial Services, Indian Banks' Association and National Bank for Agriculture and Rural Development (NABARD), to examine their operations comprehensively and make suitable recommendations for enhancing their efficiency, he said.

The RBI is reviewing the related regulatory guidelines on the basis of the committee's recommendations, and the draft amendment directions will be issued for public consultations soon, he said.

Kisan Credit Card scheme

Regarding the revision in Kisan Credit Card (KCC) guidelines, he said that the RBI has fully reviewed the KCC Scheme to expand coverage, streamline operational aspects and address emerging requirements. 

The RBI has now proposed issuing revised instructions to banks on the Scheme, consolidating those on agriculture and other activities. 

The proposed guidelines include standardisation of crop season, extension of KCC tenure to six years, alignment of drawing limit with Scale of Finance (SoF) for each crop season and inclusion of expenses on technological interventions, among others, the governor said.

The draft guidelines will be issued shortly, he added.