Banks can accept gold and silver as collateral if pledged voluntarily by MSE (micro and small enterprise) borrowers for loans sanctioned by them up to the collateral free limit of ₹20 lakh, per RBI’s amendment directions on lending to micro, small & medium enterprises (MSME) sector.
Further, banks may, on the basis of good track record and financial position of the MSE units, increase the limit for loans up to ₹25 lakh as per their internal policy.
With a view to facilitating improved access to formal credit, support entrepreneurial activity and strengthen last mile credit delivery for MSEs with limited collateral, RBI last Friday said the limit of collateral free loans to MSEs will be doubled from ₹10 lakh to ₹20 lakh.
Banks are mandated not to accept collateral security in the case of loans up to ₹20 lakh extended to units in the MSE sector. They are also required to extend collateral-free loans up to ₹20 lakh to all units financed under the Prime Minister Employment Generation Programme (PMEGP) administered by KVIC (Khadi and Village Industries Commission).
Further, banks may avail of the benefit of credit guarantee scheme cover, where applicable.
The central bank said the amendments have been carried out to (i) enhance the extant collateral-free loan limit for MSEs to ₹20 lakh, and (ii) align with certain regulatory changes.
The objective is to strengthen last mile credit delivery for MSEs with limited assets to provide as collateral. RBI said the amended directions will come into effect from April 1, 2026.
Published on February 9, 2026
