The Master Direction on Lending to Micro, Small & Medium Enterprises (MSME) Sector governs collateral and lending conditions applicable to banks for MSE borrowers. It applies to all scheduled commercial banks extending credit to micro and small enterprise units. The Directions are periodically reviewed and amended by the Reserve Bank of India to modify lending conditions. This amendment revises collateral-free lending provisions and removes an existing operational paragraph.

4. Paragraph 4.1 substituted as under:

“4.1 Collateral
(a) Banks are mandated not to accept collateral security in the case of loans up to ₹20 lakh extended to units in the MSE sector. Banks are also advised to extend collateral-free loans up to ₹20 lakh to all units financed under the Prime Minister Employment Generation Programme (PMEGP) administered by KVIC.
(b) 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 ₹25 lakh as per their internal policy.
(c) Banks may avail the benefit of Credit Guarantee Scheme cover, where applicable.
(d) 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”.

ii. Paragraph 6.5 shall stand deleted.