The Reserve Bank of India (RBI) has raised the limit for collateral-free agricultural loans, including loans for allied activities, from Rs 1.6 lakh to Rs 2 lakh per borrower to support the agricultural sector. This change is set to take effect on January 1, 2025.

Key Highlights of the Announcement

Revised Loan Limit: Farmers can now avail collateral-free loans up to Rs 2 lakh, reflecting the impact of inflation and rising agricultural input costs.

Guidelines for Banks:

• Waive collateral and margin requirements for loans within the revised limit.
• Implement the changes expeditiously to ensure timely financial assistance to farmers.
• Create awareness among farmers and stakeholders to maximize outreach and utilization.

Benefits of the Move

• Improved Credit Accessibility: Enhanced financial access for small and marginal farmers, who account for over 86% of the farming community.
• Cost Reduction: Removal of collateral requirements reduces borrowing costs, making loans more affordable.
• Boost to Kisan Credit Card (KCC) Uptake: Encourages more farmers to use KCC loans for investments in agricultural operations.
• Strengthening Financial Inclusion: Aligns with the Modified Interest Subvention Scheme, providing loans up to Rs 3 lakh at an effective 4% interest rate.
• Support for Allied Activities: Recognizes the growing importance of allied agricultural activities like dairy, poultry, and fisheries, enabling farmers to diversify income sources.

Implications for the Agricultural Sector

• Operational Support: Farmers gain access to adequate financial resources for agricultural inputs, operational needs, and development activities.
• Economic Growth: Increased credit flow fosters credit-driven agricultural growth, contributing to the rural economy and sustainable agricultural practices.
• Upliftment of Small Farmers: Small and marginal farmers, often excluded due to lack of collateral, benefit significantly, improving their livelihoods and economic resilience.