What changed
The exemption limit for secondary collateral under the SGSY scheme was increased: for individual loans, from ₹50,000 to ₹1 lakh; for group loans, from ₹5 lakh to ₹10 lakh. Loans within these new limits only require primary collateral (hypothecation of assets created from the loan). For loans above these limits, banks may demand additional collateral or margin at their discretion.
What it means for you
Banks must now extend collateral-free loans up to higher thresholds under SGSY, easing credit access for individual and group borrowers. This reduces the risk burden on borrowers but requires banks to rely more on primary security and due diligence. Non-compliance with these norms has drawn complaints from government bodies, so strict adherence is expected.
What you must do
- Update internal lending policies to reflect the new collateral exemption limits for SGSY loans.
- Train branch staff on the revised limits and ensure no secondary collateral is demanded for loans up to ₹1 lakh (individual) or ₹10 lakh (group).
- Implement monitoring mechanisms to ensure compliance and avoid complaints from government authorities.
- For loans exceeding the new limits, document the basis for any additional collateral or margin requirements.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Borrowers under the SGSY scheme, Bank branch managers and credit officers handling priority sector lending
What is the new collateral exemption limit for individual SGSY loans?
The exemption limit for secondary collateral on individual loans under SGSY has been raised from ₹50,000 to ₹1 lakh. Loans up to this amount require only primary security, such as hypothecation of assets created from the loan.
Does the group loan exemption apply regardless of group size?
Yes, the upper ceiling of ₹10 lakh for group loans is irrespective of the size of the group or the per capita loan amount to the group.
What should banks do if a loan exceeds the new exemption limits?
For individual loans above ₹1 lakh and group loans above ₹10 lakh, banks may obtain additional collateral such as margin money, insurance policies, or marketable securities, in addition to primary security, at their discretion.