MUMBAI: The Reserve Bank has issued amended guidelines, doubling the collateral-free loan limit to micro, small and medium enterprises from Rs 10 lakh to Rs 20 lakh, effective April 1, 2026, to increase their access to formal credit.
“These amendments have been carried out to enhance the extant collateral-free loan limits for micro, medium and small enterprises to Rs 20 lakh from the present Rs 10 lakh, and to align with certain regulatory changes that have been notified separately, with the objective of strengthening last mile credit delivery for MSMEs with limited assets to provide as collateral,” the central bank said in notification Monday.
At the February 6, monetary policy review, the central bank had said it would make these changes shortly. The amended directions shall come into effect from April 01, 2026.
“This amendment aims to support MSMEs with enhanced, affordable credit, encouraging formal borrowing and strengthening the grassroots-level economy,” it said further.
This is RBI’s effort to deepen financial inclusion and ease credit constraints faced by smaller enterprises, even though some financial sector experts warned of consequences higher unsecured lending on the credit quality.
MSMEs are the backbone of the economy, contributing nearly 30% to GDP and employing over 11 crore people and chipping in with over 40% of total exports. Despite their economic importance, access to formal credit remains a persistent challenge, particularly that lack sufficient assets to pledge as collateral. But industry bodies and MSME associations have welcomed the move, noting that higher collateral-free limits could reduce dependence on informal lenders who charge exorbitant interest rates.
The RBI move to double the collateral-free loans to MSMEs to Rs 20 lakh complements the budget 2027’s Rs 10,000-crore MSME growth fund.
To mitigate risks, the RBI has shown the need for stronger appraisal mechanisms, encouraging lenders to adopt cash-flow-based assessments and leverage digital and GST-linked data over conventional collateral-centric models.
"The RBI move to increase the MSME collateral free loan cap limit is a welcome decision and would further increase the risk appetite of banks and NBFCs in further enhancing their exposure to this sector thus bridging the credit gap in line with the government’s vision of promoting the MSME sector," said Simranjeet Singh, CEO of Anand Rathi Global Finance.