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The Reserve Bank of India issues updated directions for lending to the Micro, Small and Medium Enterprises sector. Scheduled commercial banks must follow these rules for priority sector lending, credit targets, collateral-free loans, and debt restructuring. Banks must not accept collateral security for loans up to twenty lakh rupees extended to micro and small enterprises. Banks may increase this collateral-free limit up to twenty-five lakh rupees based on track record and financial position. Buyers must pay suppliers within forty-five days or pay compound interest at three times the Bank Rate. These directions take effect on the day they are placed on the official website.
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RBI/FIDD/2017-2018/56 Master Direction FIDD.MSME & NFS.12/06.02.31/2017-18 July 24, 2017 ( Updated as on February 09, 2026 ) ( Updated as on July 23, 2025 ) ( Updated as on June 11, 2024 ) ( Updated as on December 28, 2023 ) ( Updated as on July 29, 2022 ) (Updated as on April 25, 2018) The Chairman / Managing Director / Chief Executive Officer All Scheduled Commercial Banks (excluding Regional Rural Banks) Madam/Dear Sir, Master Direction - Lending to Micro, Small & Medium Enterprises (MSME) Sector The Reserve Bank of India has, from time to time, issued a number of instructions / guidelines to banks relating to lending to the Micro, Small and Medium Enterprises Sector. The Master Direction enclosed incorporates the updated instructions / guidelines on the subject. The list of circulars consolidated in this Master Direction is indicated in the Appendix . Yours faithfully (R Giridharan) Chief General Manager
Master Direction – Reserve Bank of India [Lending to Micro, Small & Medium Enterprises (MSME) Sector] - Directions, 2017 In exercise of the powers conferred by Sections 21 and 35 A of the Banking Regulation Act, 1949, the Reserve Bank of India, being satisfied that it is necessary and expedient in the public interest to do so, hereby, issues the Directions hereinafter specified.
CHAPTER – I PRELIMINARY
1.1 Short Title and Commencement
1.2 Applicability The provisions of these Directions shall apply to all Scheduled Commercial Banks (excluding Regional Rural Banks RRBs).
1.3 Definitions/ Clarifications In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them as below:
CHAPTER – II
2.2 All the above enterprises are required to register online on the Udyam Registration portal and obtain ‘Udyam Registration Certificate’. For PSL purposes banks shall be guided by the classification recorded in the Udyam Registration Certificate (URC).
2.3 Retail and Wholesale trade are included as MSMEs for the limited purpose of priority sector lending and are allowed to be registered on Udyam Registration Portal.
2.4 The certificate issued on Udyam Assist Portal (UAP) to Informal Micro Enterprises (IMEs) shall be treated at par with Udyam Registration Certificate for the purpose of availing Priority Sector Lending benefits. IMEs with an Udyam Assist Certificate shall be treated as micro enterprises for the purpose of PSL classification.
CHAPTER - III
3.1 Priority Sector Guidelines for MSME sector Scheduled Commercial Banks shall adhere to the targets/sub-targets for lending to the MSME sector and related aspects as laid down in the Master Directions - Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2025 dated March 24, 2025 , as updated from time to time.
3.2 In terms of the recommendations of the Prime Minister’s Task Force on MSMEs, banks are advised to achieve:
CHAPTER - IV
4.1 Collateral 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.
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.
Banks may avail the benefit of Credit Guarantee Scheme cover, where applicable.
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.
4.2 Composite loan A composite loan limit of ₹1 crore can be sanctioned by banks to enable the MSE entrepreneurs to avail of their working capital and term loan requirement through Single Window.
4.3 General Credit Card (GCC) Facility Banks which are eligible to issue credit cards under the Master Direction -Credit Card and Debit card- Issuance and Conduct Directions, dated April 21, 2022 (as updated from time to time), may issue General Credit Cards to individuals/entities sanctioned working capital facilities for non-farm entrepreneurial activities which are eligible for classification under the priority sector guidelines. The terms and conditions of the credit facilities extended in the form of GCC shall be as per the Board approved policies of the banks, within the overall framework laid down by Reserve Bank. Guidelines on collateral free lending for micro and small units issued from time to time shall apply. Banks shall adhere to the instructions on reporting GCC data as issued by RBI from time to time.
4.4 Streamlining flow of credit to Micro and Small Enterprises (MSEs) for facilitating timely and adequate credit flow during their ‘Life Cycle’: In order to provide timely financial support to Micro and Small enterprises facing financial difficulties during their ‘Life Cycle’, detailed guidelines were issued to banks vide circular FIDD.MSME & NFS.BC.No.60/06.02.31/2015-16 dated August 27, 2015 on the captioned subject.
In accordance with the guidelines, banks shall review and tune their lending policies to the MSE sector by incorporating therein the following provisions so as to facilitate timely and adequate availability of credit to viable MSE borrowers especially during the need of funds in unforeseen circumstances:
4.5 Debt Restructuring Mechanism for MSMEs
