The Reserve Bank of India (RBI) has revised its lending norms for the micro, small and medium enterprises (MSME) sector, raising the ceiling for collateral-free loans to micro and small enterprises (MSEs) to Rs 20 lakh. Under the amended directions, banks have been instructed not to insist on collateral security for loans of up to Rs 20 lakh extended to MSE units. Lenders have also been advised to provide collateral-free loans up to the same limit to all beneficiaries covered under the Prime Minister Employment Generation Programme (PMEGP), which is implemented by the Khadi and Village Industries Commission (KVIC).
Banks may further relax collateral requirements for loans up to Rs 25 lakh for MSEs with a satisfactory repayment history and sound financial position, subject to their internal credit policies. In such cases, lenders may avail coverage under the Credit Guarantee Scheme, wherever applicable. The central bank noted that voluntary pledging of gold or silver by borrowers for loans sanctioned within the collateral-free limit will not be treated as a breach of the directive.
The changes have been incorporated into the Master Direction on Lending to the MSME Sector, which was last updated in July 2025. The RBI said the revised framework is intended to strengthen last-mile credit delivery to micro and small enterprises, which often struggle to furnish collateral due to limited asset ownership. RBI noted that amended directions also bring MSME lending norms in line with certain regulatory changes notified separately by the central bank. The RBI stated further that the measures form part of its broader effort to improve the flow of institutional finance to the MSME sector, a key contributor to employment generation and overall economic growth.