RBI raises collateral-free agricultural loan limit to Rs 2 lakh

The Reserve Bank of India (RBI) has raised the collateral-free agricultural loan limit from Rs 1.6 lakh to Rs 2 lakh per borrower, a move aimed at improving access to credit for small and marginal farmers.

Loan limit last revised five years ago

This change, announced during the Monetary Policy Committee (MPC) meeting on December 6, is expected to address the financial challenges faced by farmers, enabling them to avail loans without the need for collateral. The increased loan limit is a step toward enhancing the affordability and accessibility of agricultural financing.

The RBI’s decision is seen as a positive development for the agricultural sector, particularly in helping small-scale farmers secure the necessary funds for growth and development. By removing the requirement for security, the central bank hopes to ease the financial burden on this demographic and encourage more banks to lend to the agricultural sector. This policy change aligns with the RBI’s broader goal of promoting financial inclusion.

Banks to adjust lending frameworks

In another significant move, the RBI has made adjustments to the norms surrounding Foreign Currency Non-Resident (FCNR) deposits. Banks will now be allowed to offer FCNR deposits with maturities ranging from one to less than three years at a higher interest ceiling of Overnight Alternative Reference Rate (ARR) + 400 basis points. This marks an increase from the earlier limit of ARR + 200 basis points. The move is intended to attract more foreign currency inflows, providing an incentive for non-resident Indians (NRIs) to invest in the country’s banking system.

These measures by the RBI are part of its broader strategy to strengthen rural financing while simultaneously boosting foreign currency deposit inflows. As the global economic landscape evolves, these changes will help improve the liquidity position of Indian banks and provide a much-needed boost to the agricultural and foreign currency sectors.