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RBI Boosts MSEs: Collateral-Free Loans Up to Rs 20 Lakh Approved

The Reserve Bank of India has mandated that banks cannot demand collateral for loans up to Rs 20 lakh extended to Micro and Small Enterprises. This mandate also applies to all units financed under the Prime Minister's Employment Generation Programme. Banks may increase this collateral-free limit to Rs 25 lakh based on the borrower's good track record and financial position. The new regulations will come into effect for loans sanctioned or renewed on or after April 1, 2026.

Key Points: RBI Allows Collateral-Free Loans Up to Rs 20 Lakh for MSEs

  • Collateral-free loans up to Rs 20 lakh for MSEs
  • Limit can be raised to Rs 25 lakh based on track record
  • Applies to PMEGP units administered by KVIC
  • New rules effective from April 1, 2026
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RBI allows collateral free loans of up to Rs 20 lakh to MSEs

RBI mandates banks to provide collateral-free loans up to Rs 20 lakh for Micro and Small Enterprises, with provisions to increase limits.

"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. - RBI Circular"

Mumbai, February 9

The Reserve Bank of India on Monday allowed collateral free loans of up to Rs 20 lakh to the units in the Micro and Small Enterprises sector.

"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," RBI said in its circular.

RBI also allowed the banks to extend the loans up to Rs 25 lakh on the basis of good track record and financial position of the MSE units.

"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," the notification read.

Banks may avail the benefit of Credit Guarantee Scheme cover, where applicable.

"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," RBI said.

The amendment shall come into force for all loans to MSE borrowers sanctioned or renewed on or after April 01, 2026.

- ANI

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Reader Comments

R
Rohit P
Good initiative on paper, but the real test is implementation. Banks are still very risk-averse. Will they actually process these loans quickly, or will there be endless paperwork and "internal approvals"? Hope it works on the ground.
A
Aman W
Rs 20 lakh collateral-free is a game-changer for micro businesses. The link to PMEGP is smart. Many young people in my colony are doing courses but lack capital to start. This could be the push they need. 🙏
S
Sarah B
As someone who works with small businesses, I appreciate the nuance. The option to go up to 25 lakhs based on track record rewards good entrepreneurs. Also, the clarity on gold/silver is important for many family-run businesses.
V
Vikram M
April 2026 is too far away! Why such a long lead time? The MSME sector needs support *now* to recover and grow. The delay in implementation is disappointing.
N
Nisha Z
This is a step in the right direction for financial inclusion. Many small vendors and artisans have talent but no property to pledge. Hope banks create simple, vernacular application processes for them.

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