The Reserve Bank of India has issued amendments to its Master Direction on lending to Micro, Small and Medium Enterprises (MSME), revising banks’ collateral practices for lending to micro and small enterprise (MSE) units and deleting an existing provision under the Directions. Revised paragraph 4.1 mandates that banks must not accept collateral security for loans up to INR 20 lakh extended to MSE units, and advises banks to extend collateral-free loans up to INR 20 lakh to all units financed under the Prime Minister Employment Generation Programme administered by the Khadi and Village Industries Commission. Based on an MSE unit’s track record and financial position, banks may set an internal policy to dispense with collateral requirements for loans up to INR 25 lakh, and may avail Credit Guarantee Scheme cover where applicable. Gold and silver voluntarily pledged by borrowers for loans sanctioned up to the collateral-free limit will not be treated as a breach of the collateral-free mandate. Paragraph 6.5 of the Directions is deleted. The amendments apply to all loans to MSE borrowers sanctioned or renewed on or after 1 April 2026.
Reserve Bank of India 2026-02-09
Reserve Bank of India amends MSME lending rules to mandate collateral-free MSE loans up to INR 20 lakh and permit waivers up to INR 25 lakh
The Reserve Bank of India amended its Master Direction on lending to Micro, Small and Medium Enterprises, mandating banks to offer collateral-free loans up to INR 20 lakh for micro and small enterprises and allowing internal policies for collateral-free loans up to INR 25 lakh. These changes apply to loans sanctioned or renewed from 1 April 2026.