COLLATERAL FREE LOANS UPTO Rs 5 LAKH TO MSEs - MANDATORY GUIDELINES

Reserve Bank of India (RBI) had issued a circular RPCD.SME&NFS. BC No. 84A /06.02.31(P) /2008- 09 dated January 20, 2009 regarding extending collateral free loans up to Rs. 5 lakh sanctioned to the units of Micro and Small Enterprises (MSEs) sector (both manufacturing and service enterprises), as defined under MSMED Act, 2006. RBI has received inquiries as to whether these guidelines are advisory or mandatory in nature. In view thereof, RBI has clarified that these
guidelines are mandatory and banks must not obtain collateral security in the case of loans upto Rs. 5 lakh extended to all units of the MSE sector.