The RBI has declared that micro and small enterprises (MSEs) would now be able to obtain collateral free loans amounting to Rs. 10 lakh as compared to the earlier ceiling of Rs. 5 lakh.

"The limit for collateral free loans to the MSE sector be increased from the present level of Rs5 lakh to Rs10 lakh and it be made mandatory for banks," RBI said.

As per RBI's directive the banks can take cover for the collateral free credit under CGS. CGS refers to the credit guarantee system.

The apex bank has come to this decision following the recommendation given by the working group headed by V.K.Sharma which was appointed to review the credit guarantee scheme (CGS) of the Credit Guarantee Fund Trust for Micro and Small Enterprises.

RBI says that the awareness regarding the benefits and features of the scheme needs to be spread so as to upscale CGS. It has also suggested that the branch CEOs of banks should take over the charge of CGS operations.

"As the branch level functionaries have a predilection to lend against collaterals, the group recommends that the chief executive officers (CEOs) of banks assume complete and total ownership in the matter of strongly encouraging the branch level functionaries to avail of the CGS cover, including making performance in this regard a criterion in the evaluation of their field staff," RBI said.