The Reserve Bank of India (RBI) has given an important decision on Monday, giving major relief to the micro and small enterprises (MSEs) of the country. The Central Bank has given clear instructions to the banks to provide loans up to Rs 20 lakh to the MSE sector units without any guarantee. This step has been taken with the aim of eliminating the cash flow problem of small businessmen and accelerating their growth.
What is the new order of RBI?
In a notification issued on Monday, RBI has said that banks should not accept any collateral security in case of loans up to Rs 20 lakh given to MSE sector units. This rule will not only apply to normal MSE units, but units financed under the Prime Minister’s Employment Generation Program (PMEGP) will also benefit from it.
According to the RBI circular, “Banks are advised to also provide unsecured loans up to Rs 20 lakh to all units financed under PMEGP administered by Khadi and Village Industries Commission (KVIC).
Limit up to Rs 25 lakh on good track record RBI has also provided some flexibility to banks. If an MSE unit has a strong financial record, banks can increase this limit based on their internal policy.
- Good financial position: The notification said banks may increase the unsecured loan limit from Rs 20 lakh to Rs 25 lakh depending on the good track record and financial condition of the MSE units.
- Credit Guarantee Scheme: Banks can avail credit guarantee scheme cover where applicable.
Exemption from voluntarily mortgaging gold: Many times small businessmen want to pledge their property voluntarily to get a loan quickly. Giving clarity on this, RBI has said that if a borrower voluntarily pledges gold or silver with banks as collateral, it will not be considered a violation of this mandate. That is, even within the limit of Rs 20 lakh, if someone wants to take a gold loan on his own free will, the bank can accept it.
When will the rules come into force?
This new amendment will not come into effect with immediate effect. RBI has given time to banks and financial institutions to prepare for this. This rule will be applicable to all MSE loans sanctioned or renewed on or after April 1, 2026.
This move by RBI is a big boost for India’s MSME sector, which is often considered the backbone of the country’s economy. By getting loans without guarantee, it will be easier for small entrepreneurs to raise capital and they will be able to use their mortgaged assets for other big investments. This rule, which will be implemented from 2026, is expected to increase the confidence of small borrowers in the banking system.
