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The Reserve Bank of India (RBI) has announced an increase in the collateral-free loan limit for Micro, Small, and Medium Enterprises (MSMEs) from Rs 10 lakh to Rs 20 lakh. RBI Governor Sanjay Malhotra clarified that while the higher limit had been effective for some time, awareness among borrowers and lenders was limited.

The revised limit will apply to all loans sanctioned or renewed for small borrowers on or after April 1, 2026.

A collateral-free loan, also called an unsecured loan, allows businesses to borrow funds without pledging assets such as property, vehicles, or machinery.

In its monetary policy statement on Developmental and Regulatory Policies, the RBI said the move is intended to “facilitate improved access to formal credit, support entrepreneurial activity, and strengthen last-mile credit delivery for Micro and Small Enterprises with limited collateral.” Instructions regarding the implementation of the revised limit will be issued shortly.

An enterprise is classified as micro, small, or medium based on investment in plant and machinery and turnover:

Micro: Investment ≤ Rs 2.5 crore, turnover ≤ Rs 10 crore

Small: Investment ≤ Rs 25 crore, turnover ≤ Rs 100 crore

Medium: Investment ≤ Rs 125 crore, turnover ≤ Rs 500 crore

MSME borrowers do not require an external credit rating if the maximum aggregate exposure to one counterparty does not exceed Rs 7.5 crore, provided other regulatory conditions are met.

In other development, the Reserve Bank of India’s Monetary Policy Committee (MPC) kept the policy repo rate unchanged at 5.25 per cent and retained its “neutral” stance, signalling a continued pause as growth remains steady and inflation stays benign.

RBI Governor Sanjay Malhotra said future MPC decisions will be guided by evolving macroeconomic conditions, reiterating the central bank’s data-dependent approach amid global uncertainties.

On the demand side, RBI Governor Sanjay Malhotra said that the momentum in private consumption is expected to be sustained, while rural demand remains steady. Growth in real Gross Value Added (GVA) is largely driven by the services sector, indicating a stable domestic demand. The RBI has revised GDP growth estimates for Q1 and Q2 of FY27 upward to 6.9 per cent and 7 per cent, from the earlier projections of 6.9% and 6.8%, reflecting stronger-than-expected economic activity.

Speaking on inflation, the RBI MPC statement highlighted that the outlook is benign. Headline CPI inflation stayed low in November and December 2025, with the central bank now forecasting FY26 inflation at 2.1 per cent.

Malhotra said India’s trade agreements with the European Union and the United States are expected to support exports and GDP growth over the medium term. He added that India continues to be a favourable destination for greenfield investments and foreign direct investment, supported by strong macroeconomic fundamentals and policy clarity.