Banks can extend collateral-free loans up to ₹25 lakh to MSEs: RBI

The RBI on Monday said banks can extend collateral-free loans up to Rs 25 lakh to Micro and Small Enterprises (MSEs) units on the basis of their good track record and financial position.

The Reserve Bank of India (RBI) has amended the directions related to 'Lending to Micro, Small & Medium Enterprises (MSME) Sector'.

The amendments have been carried out to enhance the extant Collateral-Free Loan Limit for Micro and Small Enterprises (MSEs) to Rs 20 lakh, it said.

"Banks may, on the basis of good track record and financial position of the MSE units, increase the limit to dispense with the collateral requirement for loans up to Rs 25 lakh as per their internal policy," the RBI said.

Also, banks may avail the benefit of Credit Guarantee Scheme cover, where applicable, it added.

"However, accepting gold and silver as collateral pledged voluntarily by borrowers for loans sanctioned by the banks upto the collateral-free limit, will not be construed as a violation of the above mandate,"