RBI keeps repo rate at 5.25%, raises collateral-free MSME loans to ₹20 lakh

Monetary Policy Update: No rate cut, higher growth outlook, stronger customer protection rules, ₹25,000 fraud compensation, and major MSME support announced.

The Reserve Bank of India (RBI) on Friday announced the decisions of its bi-monthly Monetary Policy Committee (MPC), keeping the key repo rate unchanged at 5.25%. The central bank maintained status quo after cutting the rate from 5.5% to 5.25% in December, signalling a cautious approach amid global and domestic economic conditions.

With no further rate reduction, RBI has directed banks to ensure that the benefits of the earlier cut are fully passed on to customers. Several banks have already lowered interest rates on home loans and personal loans, and more lenders are expected to follow, providing relief to borrowers.

In a major boost for small businesses, RBI raised the limit for collateral-free loans to Micro, Small and Medium Enterprises (MSMEs) from the existing level to ₹20 lakh. This move aims to ease access to formal credit, reduce dependence on collateral, and support business expansion. Limited access to security has long been a hurdle for small enterprises, and the revised cap is expected to significantly improve credit flow to the sector.

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Governor Malhotra also announced a series of customer-centric reforms to strengthen consumer protection, digital payment safety, and financial inclusion. RBI will soon release three draft guidelines covering prevention of mis-selling, rules for loan recovery and engagement of collection agents, and limiting customer liability in unauthorised electronic banking transactions.

To protect depositors and digital banking users, RBI proposed a new compensation framework for small-value fraud cases. Under this, customers can receive compensation of up to ₹25,000 for losses due to fraudulent transactions. The central bank also plans to issue a discussion paper on strengthening digital payment security, which may include layered credit limits and additional authentication for vulnerable users such as senior citizens.

Further, RBI unveiled “Mission Saksham”, a new initiative aimed at strengthening Urban Co-operative Banks (UCBs) and enhancing their operational stability and governance.

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On the macroeconomic front, RBI revised India’s growth forecast for FY2025–26 upward to 7.4% from the earlier 7.3%, citing improved economic momentum, supportive budget measures, and steady services exports.

Overall, the policy decisions reflect RBI’s focus on balanced growth, customer safety, financial inclusion, and targeted support to small businesses.