The Reserve Bank of India (RBI) has made a major announcement that will help small business owners across the country. In a new notification issued on February 9, 2026, the central bank has doubled the limit for collateral-free loans for Micro and Small Enterprises (MSEs). Starting from April 1, 2026, banks cannot ask for any security or collateral for loans up to ₹20 lakh. This move is expected to make it easier for new entrepreneurs to get funding.
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What are the new rules for collateral free loans?
According to the Amendment Directions, 2026, banks are mandated not to accept collateral security for loans up to ₹20 lakh given to units in the MSE sector. Earlier, this limit was lower, and many small businessmen faced difficulties in providing assets for security. This new rule also applies to all units financed under the Prime Minister Employment Generation Programme (PMEGP).
The RBI has also given banks the freedom to increase this limit further. If a borrower has a good financial track record, banks can extend collateral-free loans up to ₹25 lakh as per their internal policy. This flexibility allows banks to support performing businesses without burdening them with asset requirements.
When will this start and are there any exceptions?
These new directions will come into force for all loans sanctioned or renewed on or after April 1, 2026. Banks have been given time until then to update their internal policies and systems. The RBI clarified that the increase is essentially an adjustment for inflation, as the previous limits had not been changed for a long time.
There is an important clarification regarding gold and silver. If a borrower voluntarily pledges gold or silver as security for a loan within this limit, it will not be considered a violation of the mandate. However, banks cannot force borrowers to provide such collateral for loans under the ₹20 lakh threshold.
