RBI Boosts Credit Flow: Higher Loan Limits for Small Businesses and Support for REIT Financing

India’s central bank has introduced measures intended to deepen credit access for small enterprises and expand formal financing into the real estate sector. These steps, unveiled on 6 February 2026, are part of a broader effort to strengthen last-mile lending and support economic activity against a backdrop of steady inflation and stable interest rates.

Doubling Collateral-Free Loan Thresholds for Small Firms

One of the standout changes is the decision to double the maximum collateral-free loan amount for micro and small enterprises (MSEs) from ₹10 lakh to ₹20 lakh. This enhancement is aimed at reducing barriers for businesses that often lack significant assets to pledge as security, thereby enabling easier access to bank credit for working capital and expansion. The revised limit will apply to loans sanctioned or renewed from 1 April 2026 onwards. Banks may also relax collateral requirements up to ₹25 lakh for borrowers with strong repayment histories, depending on their internal policies.

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This shift is expected to ease the financing burden on small enterprises, many of which contribute substantially to employment and local economies but traditionally struggle with formal credit access.

Enabling Bank Lending to REITs

Another important development is the permision for commercial banks to extend loans to Real Estate Investment Trusts (REITs), subject to prudential safeguards. REITs are pooled investment vehicles that own and manage income-producing real estate like office parks and malls. Until now, banks were restricted from directly financing these entities, relying instead on secondary mechanisms such as the bond market or special purpose vehicles to facilitate funding.

Draft guidelines accompanying this change propose safeguards such as limiting the aggregate credit exposure to a REIT and its underlying entities to a prudent share of the trust’s assets, and restricting lending to SEBI-registered, financially sound REITs. This framework is designed to shield banks from undue risk while broadening funding avenues for a sector that has grown steadily in India.

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By opening the door to bank financing, RBI aims to reduce REITs’ dependence on frequent refinancing and volatile capital markets, potentially supporting more stable long-term funding for property assets.

Implications for Credit Markets

Taken together, these changes signal a marked emphasis on strengthening formal credit delivery mechanisms. By lowering barriers for small business lending, the RBI is targeting segments traditionally underserved by formal credit markets. Simultaneously, extending bank loans to REITs could diversify funding sources for commercial property, helping to support institutional growth and potentially easing cost pressures associated with refinancing.

These steps come against the backdrop of a central bank stance that has kept the benchmark repo rate unchanged at 5.25%, suggesting that lenders should remain focused on credit flow while inflation remains contained.

Conclusion

The Reserve Bank of India’s recent policy adjustments reflect a dual push: making credit more accessible to small enterprises, and enriching the financing ecosystem for real estate investment trusts. By easing collateral requirements up to ₹20 lakh for MSEs and allowing banks to lend directly to REITs under careful oversight, the central bank is nudging lenders toward broader and more inclusive credit portfolios. These measures could help stimulate business activity and deepen institutional funding channels in sectors that are key to India’s growth story.
 

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