RBI Enhances Collateral-Free Lending for MSEs

• 10 Feb 2026

Source: TH 

The Reserve Bank of India, through the Lending to MSME Sector (Amendment) Directions, 2026, has directed banks not to insist on collateral security for loans up to ₹20 lakh extended to Micro and Small Enterprises (MSEs). 

• Applicability: The amended directions will be applicable to all loans to MSE borrowers sanctioned or renewed on or after 1stApril 2026. 
• Enhanced Collateral-Free Loan Limit: The collateral-free loan ceiling has been increased from ₹10 lakh to ₹20 lakh, aiming at strengthening last-mile credit delivery for small businesses with limited assets. 
• Coverage under PMEGP: It will be applicable to all units financed under the Prime Minister Employment Generation Programme (PMEGP), implemented by the Khadi and Village Industries Commission (KVIC). 
  • PMEGP is a credit-linked subsidy scheme of the Government of India, launched in 2008 that promotes self-employment by supporting the setting up of micro enterprises and small units in both rural and urban areas. 
• Additional Credit: Based on a borrower’s good track record and financial strength, banks may allow collateral-free loans up to ₹25 lakh, as per their internal policies, with credit guarantee cover where applicable. 
• Exceptions: Voluntary pledging of gold or silver by borrowers for loans within the collateral-free limit will not be treated as a violation of RBI’s directions.

Read more: Strengthening MSMEs for Economic Resilience