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The central bank's directive aims to significantly boost credit flow to the vital micro and small enterprise sector, which has demonstrated robust growth in recent years.
Expanded Credit Access for MSEs
The Reserve Bank of India (RBI) has clarified that banks can accept gold and silver voluntarily pledged by borrowers for loans to micro and small enterprises (MSEs) up to the prevailing collateral-free limit. This move, effective April 1, 2026, ensures that such pledges will not be construed as a violation of lending norms, providing much-needed flexibility.
New Loan Thresholds
Under the revised guidelines, lenders are mandated to offer collateral-free loans of up to ₹20 lakh to MSEs. Banks possess the discretion, guided by their internal credit policies and the borrower's financial standing, to raise this collateral-free threshold to ₹25 lakh. This updated framework also stipulates that lenders should not insist on collateral security for these loan amounts, including those financed under the Prime Minister Employment Generation Programme (PMEGP).
Risk Mitigation and Sector Growth
To further mitigate potential risks, banks are encouraged to avail coverage under the Credit Guarantee Scheme wherever applicable. This policy shift arrives at a time when credit to the MSE segment has seen substantial expansion. RBI data indicates that outstanding credit to MSEs surpassed ₹10 lakh crore by the end of December 2025, reflecting a significant year-on-year growth of approximately 30%. This sustained growth highlights the sector's increasing reliance on and contribution to the financial system.