RBI Raises Collateral-Free Agricultural Loan Limit to ₹2 Lakh

In a significant move to enhance financial access for farmers, the Reserve Bank of India (RBI) has raised the limit for collateral-free agricultural loans from ₹1.6 lakh to ₹2 lakh. Effective January 1, 2025, the directive aims to address inflationary pressures and rising input costs while providing small and marginal farmers with sufficient credit support to meet their operational and developmental needs.

Key Highlights of the Decision

Revised Loan Limit: The collateral-free loan cap for agricultural and allied activities has been increased to ₹2 lakh per borrower, up from ₹1.6 lakh.

Implementation Timeline: Banks are directed to implement the revised guidelines by January 1, 2025.

Widespread Awareness: Banks must run awareness campaigns to ensure farmers are well-informed about the enhanced loan provisions.

Significance of the Move

Enhanced Credit Access: Small and marginal farmers (over 86% of the sector) will benefit from reduced borrowing barriers.

Streamlined KCC Uptake: The move simplifies access to Kisan Credit Card (KCC) loans, improving financial inclusion and ensuring timely credit for farming activities.

Financial Flexibility: Farmers gain access to credit without collateral, helping them invest in agricultural operations and manage rising input costs.

Addressing Key Agricultural Credit Issues

The initiative aims to tackle challenges such as over-reliance on short-term loans and non-institutional credit sources. It also counters fiscal stress caused by loan waivers.

Supporting Initiatives for Credit Flow

Modified Interest Subvention Scheme: Offers short-term agricultural loans up to ₹3 lakh at a 4% effective interest rate.

KCC Scheme: Provides adequate and timely credit to farmers for operational and allied activities.

Cooperative Credit Societies: Promotion of PACS (Primary Agricultural Credit Societies) to strengthen rural credit systems.

Context and Future Outlook

The RBI’s decision reflects a proactive approach to align financial policies with the rising costs of agricultural inputs. It complements the government’s focus on credit-driven economic growth and sustainable agriculture, offering critical support to small farmers. By addressing inflation and easing credit access, this move reinforces financial inclusion in the agricultural sector and contributes to improving rural livelihoods.

Summary of the news