No collateral? no problem! RBI lets farmers borrow up to Rs 2 lakh

To address the challenges faced by small and marginal farmers in accessing credit, the RBI has increased the limit for collateral-free loans to ₹2 lakh.

Collateral Free Loan

To reduce financial pressures on farmers and cope with rising agricultural input costs, the Reserve Bank of India (RBI) has increased the limit for collateral-free agricultural loans from ₹1.6 lakh to ₹2 lakh. The Ministry of Agriculture said in a statement that this revised limit, which will come into effect from January 1, 2025, is expected to benefit millions of farmers across the country.

Agriculture Loan

Increased Loan Limit

This decision has been taken as inflationary pressures continue to affect the agricultural sector. Small and marginal farmers, who account for more than 86% of the agricultural community, often struggle to obtain credit. By increasing the loan limit, the Reserve Bank aims to strengthen access to credit without the burden of collateral, providing a crucial lifeline for farmers with limited assets.

Farmers Loan

Extended Loan Limit

The new limit has been extended to loans for related activities, providing farmers with opportunities to diversify income streams. The ministry's report states that banks have been instructed to waive collateral and margin requirements for loans within the updated limit. The Reserve Bank has also urged banks to expedite the implementation of the revised guidelines to ensure timely assistance to farmers.

Collateral Free Loan

Kisan Credit Card

To enhance the impact of this initiative, banks will launch awareness campaigns targeting farmers and other stakeholders in their operational areas. Focus will be placed on improving the uptake of financial support mechanisms, particularly the Kisan Credit Card (KCC).

This measure aligns with government initiatives such as the Modified Interest Subvention Scheme (MISS), which provides loans up to ₹3 lakh at a subsidized interest rate of 4% to those who pay promptly. Together, these measures are part of a broader strategy to promote sustainable agricultural practices and boost rural economic growth.

Rural Economy Will Improve

Experts have hailed the Reserve Bank's decision as a significant step towards financial inclusion. Binod Anand, a member of the government's agricultural MSP committee, said that for small and marginal farmers, eliminating collateral requirements will be transformative, enabling greater confidence and investment in their operations. The enhanced credit limit is expected not only to strengthen the agricultural sector but also to boost rural economic activity.