RBI raises ceiling for collateral-free agricultural loan from Rs1.6 lakh to Rs2 lakh

Reserve Bank of India (RBI) has announced an increase in the individual limit for collateral-free agricultural loans from Rs1.6 lakh to Rs2 lakh, with a view to offset the effect of inflation on agricultural inputs.

RBI has directed banks to waive collateral security and margin requirements for agricultural loans, including loans for allied activities, up to Rs2 lakh per borrower, with immediate effect, or latest by 1 January 2025.

Expeditious implementation of the revised guidelines will ensure timely availability of financial support to the farming community, RBI noted.

Banks have also been advised to give wide publicity to the increased loan limit so as to ensure that maximum number of farmers are aware of the revised lending policy.

This will ensure that farmers have access to enhanced financial resources to secure all necessary agricultural inputs to meet their operational and developmental needs.

This move will mostly benefit small and marginal farmers who account for over 86 per cent of the sector, by a reduction in borrowing costs. 

Besides, it will increase the potential for Kisan Credit Card (KCC) loans. This, combined with the upward revision of loan limit for the interest subvention scheme offering loans up to Rs3 lakh at an effective interest rate of 4 per cent will strengthen the finances of the farming community.