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

The Reserve Bank of India (RBI) has enhanced the collateral-free loan limit for farmers from Rs 1.6 lakh to Rs 2 lakh, effective January 1, 2025, a move aimed at supporting small and marginal farmers amid rising input costs.

The new directive instructs banks nationwide to waive collateral and margin requirements for agricultural and allied activity loans up to Rs 2 lakh per borrower.

According to the agriculture ministry, the decision comes in response to the rising input costs and the need to improve credit accessibility for farmers. "This measure will significantly benefit over 86 per cent of farmers who are small and marginal landholders," the statement said.

Banks have been instructed to implement the guidelines swiftly and ensure widespread awareness about the new loan provisions.

The move is expected to facilitate easier access to Kisan Credit Card (KCC) loans and complement the government's Modified Interest Subvention Scheme, which offers loans up to Rs 3 lakh at a 4 per cent effective interest rate.

The initiative is seen as a strategic step to enhance financial inclusion in the agricultural sector, providing farmers with much-needed financial flexibility to invest in agricultural operations and improve their livelihoods.

Agri experts view the initiative as a critical step towards enhancing credit inclusivity and supporting agricultural economic growth, addressing inflationary pressures on farming input costs.