§1Who it is for

  • Micro and small enterprises borrowing from scheduled commercial banks

Useful if

Every micro and small unit asking a bank for up to Rs 20 lakh

Do not spend time on it if

Medium enterprises (rule is for MSE only)

§2Eligibility

  1. Unit in the MSE sector (micro or small, as per Udyam classification).
  2. Loan up to Rs 20 lakh. PMEGP-financed units are also to get collateral-free loans up to Rs 20 lakh.

§3Benefits

  • Banks are mandated not to accept collateral security for loans up to Rs 20 lakh to MSE units (RBI MD para 4.1).
  • Banks may, based on good track record and financial position, dispense with collateral up to Rs 25 lakh as per internal policy.
  • Related borrower rights in the same Master Direction: written reasons for rejection of a loan application; composite loan (term loan plus working capital) up to Rs 1 crore through a single window.

§4Norms — pattern of assistance

  1. Gold and silver pledged voluntarily by the borrower within the collateral-free limit is not a violation (RBI MD para 4.1).
  2. Banks may use Credit Guarantee Scheme cover where applicable.
  3. Working capital for MSEs (Nayak Committee): minimum 20% of estimated turnover, for limits up to Rs 5 crore (RBI MSME FAQ).
  4. MSE loans are linked to an external benchmark from 1 Oct 2019 (RBI MSME FAQ). RBI does not fix the rate.

§5Documents

Not published

The guideline does not list the documents. Ask the portal or bank before you apply — we do not make up lists.

§6How to apply

  1. 1

    Apply for the loan at any bank branch. If the bank asks for property or a third-party guarantee for a loan up to Rs 20 lakh, quote RBI Master Direction para 4.1 and complain to the bank's grievance cell, then to RBI CMS (cms.rbi.org.in).

§7Pros and cons

Merits

  • Binding on banks, not a request.
  • The Government has re-emphasised strict compliance of the Rs 20 lakh rule to all banks (Lok Sabha reply, 23 Jul 2026).

Demerits

  • Applies to banks. NBFCs and MFIs are not covered by this Master Direction.
  • The bank can still refuse the loan on merit. The rule only stops it from asking for collateral.

→Related schemes

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Sources

  1. RBI Master Direction - Lending to MSME Sector (updated as on 9 Feb 2026)
  2. RBI Bulletin: Governor Sanjay Malhotra, remarks at International MSME Day week, 22 Jul 2026
  3. Lok Sabha Unstarred Question 725, answered 23 Jul 2026 (Ministry of MSME)
  4. RBI FAQs - Micro, Small and Medium Enterprises (updated 29 Jul 2025)

Checked on 18 October 2026. For information only — confirm with the department or bank. Spotted a mistake? Report it.