Summary of this article
RBI raises collateral-free loan limit for micro units
Revised MSME lending rules effective from April 2026
Change announced during February 2026 MPC decisions
The Reserve Bank of India (RBI) has raised the collateral-free loan limit for micro, small, and medium enterprises (MSMEs) to Rs 20 lakh in amended lending directions issued on February 9, 2026. The change was notified earlier in the context of the decisions of the February 2026 Monetary Policy Committee (MPC) meeting, and has now been formally notified by way of regulatory directions.
The revised norms are prescribed in Lending to Micro, Small and Medium Enterprises Sector (Amendment) Directions, 2026. These amendments alter provisions of the Master Direction on MSME lending, which was previously issued in July 2025. The amended directions will come into effect from April 1, 2026.
What the Amendment Covers
The major change that has been brought in by the amendment is to increase the collateral-free loan limit for micro and small enterprises to Rs 20 lakh. Earlier, the limit was lower, at Rs 10 lakh, and it restricted the amount of unsecured borrowing that was available to smaller businesses through formal lending channels.
RBI has said that the amendment is also in alignment with certain regulatory changes notified separately with respect to MSME lending norms. The objective, as stated in the notification, is to give a boost to last-mile credit delivery for micro and small enterprises, who have limited assets to provide as collateral.
The application of this amendment is applicable for banks and other regulated entities extending credit to MSMEs under RBI's regulatory framework.
Announcement Made During February 2026 MPC Meeting
The latest collateral-free loan limit was announced at the February 2026 Monetary Policy Committee (MPC) meeting. RBI Governor Sanjay Malhotra, while presenting the policy decisions, mentioned the measures that are aimed at promoting a better flow of institutional credit to the smaller enterprises.
The MPC announcement provided for revising the lending norms for micro and small enterprises. The amendment directions made in February outline the operational and regulatory basis for the implementation of that decision.
Impact on Micro and Small Enterprises
Micro and small enterprises often rely on external credit for working capital, continuity of business, and expansion. Access to formal credit has been limited for a large number of enterprises on account of collateral requirements, especially for enterprises with limited fixed assets.
With the revised limit, eligible enterprises can now avail higher amounts of unsecured credit from regulated lenders. The change is relevant for the enterprises that meet the criterion for classification of micro and small enterprises under the existing definition.
The amendment does not affect MSMEs' classification or eligibility norms. It has a particular focus on the collateral-free aspect of lending within the existing regime.
Regulatory Timeline and Implementation
The amended directions will come into effect from April 1, 2026. Regulated entities must comply with the revised norms by the effective date to remedy their lending policies and internal systems.
RBI has made the amendment using the powers it already has for regulating bank lending to MSMEs. The directions are binding on all entities to which the Master Direction on MSME lending is applicable.
The Master Direction on Lending to Micro, Small and Medium Enterprises lays down rules in relation to credit flow, classification and reporting in respect of MSME lending. It is periodically revised to reflect changes in regulations and policy measures.
