The Reserve Bank of India (RBI) has recently taken a significant step to strengthen small businesses and entrepreneurs. The central bank has decided to double the maximum limit for collateral-free business loans for Micro, Small, and Medium Enterprises (MSMEs). This limit has now been increased from ₹10 lakh to ₹20 lakh.
This change will bring particular relief to small business owners and startups who may not have assets to pledge as collateral but require capital to start or expand their businesses.
This new system will come into effect from April 1, 2026, and will apply to loans sanctioned or renewed after this date. This move aims to integrate small businesses into the formal banking system and increase the availability of credit.
Why did the RBI take this decision?
According to the RBI, small industries are a major foundation of the country’s economy and job creation. The limit for collateral-free loans had not been changed for a long time, so the decision to increase it was taken considering inflation and rising costs.
This decision will make it easier for micro and small enterprises to obtain formal loans and will help them with business expansion, working capital, and new investments.
What is a collateral-free loan?
A collateral-free loan is a business loan in which the borrower, whether an individual or a company, does not have to pledge any asset as security to the bank. There is no need to provide a house, land, vehicle, or other assets as collateral.
Such loans are particularly beneficial for small business owners as they can raise funds quickly with less risk and start or expand their businesses.
What is the MSME sector?
The MSME sector includes micro, small, and medium-sized enterprises. They are classified based on investment and turnover.
This sector makes a significant contribution to the country’s economy by creating jobs and promoting local production. The government and the RBI continuously take decisions related to credit support to strengthen small industries.
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New rules for Kisan Credit Cards are also on the way
The RBI has begun preparing for changes to the Kisan Credit Card (KCC) scheme. The new proposals include standardizing the crop season, extending the validity period of KCCs, and setting loan limits based on each season.
Draft guidelines for these changes are expected to be released soon. The objective is to provide farmers with easy and streamlined access to credit.
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Rohit P
My name is Rohit Pal, and I have been working in the field of journalism for the past five years. During this time, I have written on a variety of topics, including business, automobiles, technology, and politics. I have worked with several major organizations and am currently working with Timesbull.
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