RBI Increases Collateral-Free Agricultural Loan Limit to ₹2 Lakh

 

1. In December 2024, The Reserve Bank of India (RBI) increased the limit for collateral-free agricultural loans from ₹1.6 lakh to ₹2 lakh per borrower.
2. This decision, which will come into effect on January 1, 2025, is aimed at supporting farmers, particularly in light of rising input costs and inflation, and enhancing their access to financial resources.

Reasons for the Increase:

1. Rising Input Costs: The agricultural sector has faced increasing costs for inputs like seeds, fertilizers, and labor.
2. This move addresses these pressures and helps ensure that farmers have enough capital to meet operational and developmental needs.
3. Financial Inclusion: Small and marginal farmers (who make up over 86% of the agricultural sector) are often burdened by the inability to provide collateral for loans.
4. The increase in the collateral-free loan limit is expected to make it easier for these farmers to access financial services.
5. Support for Allied Activities: The loan limit also applies to loans for allied agricultural activities, such as dairy farming, poultry, fisheries, and horticulture.
6. This broadens the scope of financial support available to farmers involved in diverse agricultural ventures.

Key Features of the RBI’s New Guidelines:

1. Collateral-Free Loans:
   1. Banks are instructed to waive collateral security and margin requirements for agricultural loans up to ₹2 lakh per borrower.
   2. This removes the financial burden of providing assets as security, making it easier for farmers to obtain loans.
2. Timely Financial Assistance:
   1. The new guidelines will be implemented by January 1, 2025, and banks are urged to expedite the process to ensure that farmers receive the financial support they need without delay.
3. Publicity and Outreach:
   1. Banks are required to actively publicize the revised guidelines to ensure that farmers and other stakeholders are aware of the new provisions and can take full advantage of them.

Expected Impact:

1. With the removal of collateral requirements, more farmers, particularly small and marginal farmers, will be able to access loans.
2. This is likely to improve their financial stability and support agricultural growth.
3. The increased loan limit is expected to boost the uptake of Kisan Credit Cards (KCC), which are vital tools for farmers to obtain short-term credit for agricultural operations.
4. This will enhance their ability to invest in crop production, purchase inputs, and sustain farming activities.
5. By increasing the loan limit and eliminating collateral, the financial burden on farmers is reduced.
6. This will lower the cost of borrowing and make loans more accessible and affordable.
7. This move is aligned with the Indian government's long-term vision of fostering sustainable agriculture.
8. It supports the agricultural sector by addressing key challenges such as rising input costs and access to credit.
9. The new limit complements existing schemes like the Modified Interest Subvention Scheme, which offers loans up to ₹3 lakh at an effective interest rate of 4%. Together, these policies enhance the financial resources available to farmers and incentivize agricultural investment.

Conclusion:

The RBI’s decision to increase the limit for collateral-free agricultural loans is a significant step towards supporting farmers, particularly small and marginal ones, and improving their access to credit. By removing collateral requirements and expanding the scope of loans, the policy is expected to boost agricultural productivity, foster financial inclusion, and contribute to sustainable agricultural development in India. This move is in line with the government's broader goals of strengthening the agricultural sector and ensuring that farmers have the necessary resources to thrive.

Kisan Credit Card (KCC) Scheme The Kisan Credit Card (KCC) scheme was introduced in 1998 to provide farmers with easy access to credit for purchasing agricultural inputs and covering production needs. In 2004, it was extended to include investment credit for allied and non-farm activities.  On 18th December 2020, Prime Minister Narendra Modi launched a revised version of the KCC to offer more comprehensive financial support to farmers through a streamlined, single-window process. Objectives/Purpose: The KCC scheme is designed to meet farmers' financial requirements at various stages of farming, including: Short-term credit for crop cultivation Post-harvest expenses and produce marketing Household consumption needs Working capital for farm maintenance and allied activities Investment credit for agriculture and related sectors Eligibility: Eligible beneficiaries include: Individual or joint borrowers who are owner cultivators Tenant farmers, oral lessees, and sharecroppers Self Help Groups (SHGs) or Joint Liability Groups (JLGs) of farmers, including tenant farmers and sharecroppers Salient Features: KCC offers ATM-enabled RuPay Cards for cash withdrawals. The scheme allows for flexible credit limits, cost escalation, and multiple withdrawals within the set limit. The KCC scheme covers expenses for crop cultivation, post-harvest loans, household needs, farm asset maintenance, and investment in allied agricultural activities. It is implemented by various banks, including commercial banks, RRBs, small finance banks, and cooperatives.

 

 

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