Small businessmen will soon have a reason to rejoice. A RBI panel has proposed that collateral not be sought for loans to small businesses up to Rs. 10 lakhs. The panel has proposed to double the guarantee provided under a government scheme.

A report released by the Finance Minister, Mr. Pranab Mukherjee proposed that banks should not seek for collaterals to small businesses up to Rs. 10 lakh while sanctioning loans. The security in such cases will be provided by the Credit Guarantee Fund Trust for medium and small enterprises (CGTSME), the report read.

The report was given by a working group set by the RBI to review the Credit Guarantee Scheme of the Credit Guarantee Fund Trust in its monetary policy in April 2009.

The report also includes a proposal to reduce guarantee fees for women entrepreneurs and for enterprises in the North-East.

While launching the report, Mr. Mukherjee said, "This constitutes an important initiative by government for MSMEs to avail bank credit without the hassle of collateral or third-party guarantee."

The proposal to double the guarantee provided has come after seven months when the RBI told banks that they cannot ask for collaterals for loans up to Rs 5 lakh extended to MSMEs in manufacturing and service sector.

The Finance Minister had a meeting with the RBI on Saturday following a meeting with the SEBI. Speaking about the meeting Mr. Mukherjee said, "Various aspects of budget proposal were analyzed and board members gave their comments and inputs about budgetary proposals."

"So far the regional rural banks have come forth and consolidation among RRBs has taken place. I have also made proposal that there should be licenses for new banks and of course they should meet the criteria fixed by the RBI," he added.