Mumbai | September 30, 2025, 14:30 IST — Filed via RBI circular and press release
The Reserve Bank of India (RBI) on Tuesday announced a set of regulatory changes aimed at easing credit flow for small businesses and simplifying norms for gold-backed lending, while simultaneously enhancing the ability of banks to raise long-term funds overseas through perpetual debt instruments.
The measures, released via circulars and a press note, are intended to strike a balance between credit growth support and financial stability safeguards.
Relief for Small-Business Loans
The RBI said it has revised prudential norms for lending to micro and small enterprises (MSEs), allowing banks to extend slightly higher limits under priority sector lending.
- Revised Limits: Banks can now sanction working-capital limits up to ₹2 crore for small businesses under simplified assessment models, up from ₹1.6 crore earlier.
- Collateral Norms: For loans up to ₹20 lakh, banks must continue to lend without insisting on collateral, encouraging formal borrowing.
- Impact: The move is expected to ease access to credit for small businesses, especially in manufacturing and services, which rely on flexible working-capital cycles.
RBI officials said the decision was taken after consultations with industry associations who flagged rising input costs and delayed receivables as major constraints.
Tweaks in Gold Loan Framework
The central bank also fine-tuned rules for gold-backed lending by commercial banks and non-banking financial companies (NBFCs).
- LTV Ratio: The permissible loan-to-value (LTV) ratio remains capped at 75%, but lenders have been allowed more flexibility in valuation frequency and margin calls.
- Monitoring: Banks must adopt standardised procedures for verifying purity and quality, with an emphasis on reducing overvaluation risks.
- Impact: Analysts say the changes will make gold loans more accessible for households and small traders, while protecting lenders from undue exposure.
Higher Overseas Perpetual Debt Limit
In a parallel move, the RBI raised the ceiling on banks’ issuance of Additional Tier-1 (AT1) perpetual debt instruments in overseas markets.
- New Limit: Banks can now raise up to 3% of risk-weighted assets (RWA) via offshore perpetual debt, compared to 2% earlier.
- Objective: The move is expected to deepen capital-raising options, especially for large public sector banks looking to strengthen buffers amid rising credit demand.
- Investor Pool: With global investors showing renewed appetite for Indian bank capital paper, the RBI’s decision is likely to expand funding channels.
Market & Industry Reaction
Banking analysts said the package reflects RBI’s attempt to balance liquidity support for MSMEs and households with stronger capital flexibility for banks.
- Shares of major PSU banks gained after the announcement, reflecting optimism around additional fund-raising headroom.
- NBFCs with gold-loan portfolios also traded higher, as the tweaks may boost disbursement volumes.
- Industry bodies welcomed the small-business loan revision, calling it a timely measure to ease stress in the MSME ecosystem.
Outlook
The regulatory changes are expected to:
- Support small-business resilience in a slowing growth environment.
- Provide safer, more flexible access to gold loans for retail borrowers.
- Strengthen banks’ ability to raise global capital and maintain healthy credit growth.
Analysts, however, cautioned that banks must ensure risk management and transparency, particularly in AT1 issuances overseas, which have been volatile instruments globally.
