RBI allows collateral-free loans up to Rs 20 lakh for MSE sector

The RBI has allowed collateral-free loans up to Rs 20 lakh for Micro and Small Enterprises (MSEs). This mandate also applies to units under the PMEGP. Banks can extend this limit to Rs 25 lakh based on the MSE unit's track record and financial position.

RBI Mandates Collateral-Free Loans for MSEs

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

Increased Limit Based on Track Record

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.

Additional Provisions

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.

Effective Date

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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