The Reserve Bank of India, in exercise of its powers under Sections 21 and 35A of the Banking Regulation Act, 1949, has issued the Lending to MSME Sector (Amendment) Directions, 2026. These Directions amend the Master Direction Lending to Micro, Small & Medium Enterprises (MSME) Sector, updated as on July 23, 2025, with a view to further easing credit access for MSMEs.
Prior to the amendment, Paragraph 4.1 of the Directions mandated banks not to accept collateral security for loans up to ₹10 lakh extended to units in the Micro and Small Enterprises (MSE) sector, including units financed under the Prime Minister Employment Generation Programme (PMEGP). Banks could avail the benefit of the Credit Guarantee Scheme where applicable. Additionally, Paragraph 6.5 of the Directions prescribed certain mandatory requirements for banks in relation to MSME lending, which formed part of the regulatory compliance framework.
The amendment substitutes Paragraph 4.1 to mandate that banks shall not accept collateral security for loans up to ₹20 lakh extended to units in the MSE sector and shall extend collateral-free loans up to ₹20 lakh to all units financed under PMEGP. Banks are also permitted, based on the good track record and financial position of MSE units, to dispense with collateral requirements for loans up to ₹25 lakh as per their internal policies. Banks may continue to avail the benefit of the Credit Guarantee Scheme, where applicable. Further, acceptance of gold and silver pledged voluntarily by borrowers for loans up to the collateral-free limit shall not be treated as a violation. The amendment also deletes Paragraph 6.5 in its entirety.
Link – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13290&Mode=0
