RBI doubles collateral-free loan limit for micro and small enterprises to ₹20 lakh under the CGTMSE scheme, effective April.
Move aligns with Union Budget measures, including a ₹10,000 crore SME growth fund and additional risk capital support.
Policy push aims to strengthen MSMEs, a key employment generator, amid efforts to boost credit flow and productivity.
MSME Sector Gets Boost as RBI Doubles Collateral-Free Loan Limit to ₹20 Lakh
RBI’s collateral-free loan move complements Budget’s fiscal push to improve credit access and employment generation in the MSME sector
Summary
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The micro, small and medium enterprises (MSME) sector received a significant boost from both monetary and fiscal policy measures, with the Reserve Bank of India announcing on Friday that small businesses can now avail loans of up to ₹20 lakh without any collateral. Earlier, the ceiling for collateral-free loans stood at ₹10 lakh.
“With a view to facilitate improved access to formal credit, support entrepreneurial activity, and strengthen last-mile credit delivery for micro and small enterprises (MSEs) with limited collateral, it has been decided to enhance the limit of collateral-free loans to MSEs from ₹10 lakh to ₹20 lakh,” the RBI said in its post-Monetary Policy Committee (MPC) statement.
The new norms will come into effect from April and will apply to both newly sanctioned and renewed loans. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is the scheme through which lenders extend these loans.
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The collateral-free loan limit was last revised in 2010, when it was increased to ₹10 lakh from ₹5 lakh. “MSMEs are the growth engines of the economy. They are a very important component, especially from the point of view of generating employment,” RBI Governor Sanjay Malhotra said, adding that the latest hike was largely an adjustment for inflation.
The monetary policy move aligns with a slew of fiscal measures announced in the Union Budget on Sunday, aimed at renewing support for MSMEs and small and medium enterprises (SMEs), which are key drivers of productivity and employment.
In the Union Budget, Finance Minister Nirmala Sitharaman announced a fresh allocation of ₹10,000 crore to the SME growth fund to nurture future “Champion SMEs.” The Budget also proposed simplified tax deducted at source (TDS) rules for manpower supply, a move expected to benefit labour-intensive MSMEs. Additionally, Sitharaman earmarked dedicated funds and announced a ₹2,000 crore top-up to the Self-Reliant India Fund to provide risk capital.
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The MSME sector remains a critical pillar of the economy, providing employment to over 25.18 crore individuals.