RBI increases collateral-free loan limit to ₹2 lakh for farmers amid rising costs

The Reserve Bank of India (RBI) has raised the limit for collateral-free agricultural loans from ₹1.6 lakh to ₹2 lakh, effective from January 1, 2025. This decision is aimed at alleviating the financial burden on farmers, particularly in light of rising agricultural input costs and ongoing inflationary pressures.

Small and marginal farmers, who make up more than 86% of the farming community in India, often face difficulties in accessing credit. The RBI's move is expected to offer critical support to these farmers by providing access to loans without the need for collateral. This step is seen as a key initiative to enhance credit flow in agriculture, which has been under strain due to rising costs and limited assets among farmers.

The new loan ceiling extends to loans for allied activities, which will allow farmers to diversify their income sources. In addition, banks will be required to waive both collateral and margin requirements for loans within the updated limit, as per the RBI's directive. To ensure swift implementation, banks have been encouraged to roll out awareness campaigns to educate farmers about these revised guidelines, with a particular focus on the Kisan Credit Card (KCC).

This move aligns with broader government strategies to promote sustainable agriculture and rural economic growth. For instance, the Modified Interest Subvention Scheme (MISS) provides loans of up to ₹3 lakh at a subsidized 4% interest rate for farmers who repay on time. These initiatives are designed to not only ease the financial pressures on farmers but also stimulate rural development.

Experts have praised the RBI’s decision as a significant step toward financial inclusion. The removal of collateral requirements is expected to give small and marginal farmers greater confidence to invest in their agricultural operations. This enhanced credit access is expected to strengthen the agricultural sector and drive growth in rural economies.