In an effort to assist small and marginal farmers in the face of growing input costs, the Reserve Bank of India (RBI) increased the maximum amount of loans available to farmers without collateral from Rs 1.6 lakh to Rs 2 lakh, with effect from January 1, 2025.
For loans up to Rs 2 lakh per borrower for agriculture and related activities, the new policy directs banks all throughout the country to waive collateral and margin requirements.
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 percent 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 percent effective interest rate.
The initiative is viewed as a strategic move towards increasing financial inclusion in the agricultural sector, giving farmers the necessary financial freedom to invest in agricultural operations and better their livelihoods.
Agri experts see the move as a key step towards increasing financial inclusivity and boosting agricultural economic growth while tackling inflationary pressures on farming input costs.
The agricultural economy accounts for almost 18% of India's gross domestic product (GDP), and over half of the population is supported by agricultural income.
In February 2019, the central bank increased the maximum for collateral-free agriculture loans from ₹1 lakh to ₹1.6 lakh.
According to the RBI's current lending standards, any scheduled bank must allocate 40% of its adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure (OBE), whichever is larger, to key sectors.
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