RBI relaxes requirement and limits of collateral security in lending to MSME Sector

RBI has relaxed directions related to requirement and limits of collateral security for lending to Micro, Small & Medium Enterprises (MSME) Sector

RBI has issued Lending to Micro, Small & Medium Enterprises (MSME) Sector (Amendment) Directions, 2026 to modify requirements related to collateral security by MSME as under:

a. Banks are mandated not to accept collateral security in the case of loans up to ₹20 lakh extended to units in the MSE sector. Banks are also advised to extend collateral-free loans up to ₹20 lakh to all units financed under the Prime Minister Employment Generation Programme (PMEGP) administered by KVIC.

b. 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 ₹25 lakh as per their internal policy.

c. Banks may avail the benefit of Credit Guarantee Scheme cover, where applicable.

d. 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.

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