MSMEs can get collateral-free loans up to ₹25 lakh under new rules, RBI explains how

The Reserve Bank of India (RBI) has provided detailed guidelines on its recently announced increase in collateral-free loans for the Micro, Small, and Medium Enterprises (MSME) sector, clarifying provisions for banks and borrowers ahead of the April 1, 2026 implementation date.

The formal Lending to Micro, Small & Medium Enterprises (MSME) Sector (Amendment) Directions, 2026 specify that:

• Collateral-free loans up to ₹20 lakh are mandatory for all MSE units.


• Units financed under the Prime Minister Employment Generation Programme (PMEGP) administered by KVIC are also eligible for collateral-free loans up to ₹20 lakh.


• Banks may, based on the borrower’s credit history and financial position, increase the collateral-free loan limit up to ₹25 lakh as per internal policy.


• Accepting voluntary pledges of gold and silver for loans within the collateral-free limit does not violate RBI rules.


• The amendment also removes previous restrictions under Paragraph 6.5 of the earlier directions, streamlining lending norms.

The amendment applies to all loans sanctioned or renewed on or after April 1, 2026, ensuring uniformity in bank practices. Banks may also leverage the Credit Guarantee Scheme for eligible loans to mitigate risk while supporting MSME credit growth.

Industry experts note that the move could strengthen access to formal credit for smaller businesses, which often face challenges in providing collateral. By allowing banks to extend the limit up to ₹25 lakh based on internal assessment, RBI aims to balance credit expansion with prudent risk management.

The collateral-free loan framework is part of a broader RBI effort to boost MSME financing, a sector crucial for employment generation, entrepreneurship, and economic growth.