Big Boost for Indian Farmers: RBI Raises Collateral-Free Loan Limit to ₹2 Lakh

16 December 2024, New Delhi: In a pivotal move aimed at bolstering the agricultural sector and addressing the rising costs of inputs, the Reserve Bank of India (RBI) has increased the limit for collateral-free agricultural loans from ₹1.6 lakh to ₹2 lakh per borrower. This significant decision reflects the central bank’s acknowledgment of the growing challenges faced by farmers due to inflation and escalating input costs.

Effective January 1, 2025, banks across India will implement the revised guidelines, which waive collateral and margin requirements for agricultural loans, including those for allied activities, up to ₹2 lakh. The RBI has also instructed banks to ensure widespread publicity of the new policy, ensuring maximum outreach to farmers and stakeholders in their operational areas.

The initiative is particularly beneficial for small and marginal farmers, who constitute over 86% of India’s agricultural sector. By removing the requirement for collateral, the policy reduces borrowing costs and increases credit accessibility, empowering farmers to meet their operational and developmental needs. It is also expected to boost the uptake of Kisan Credit Card (KCC) loans, enabling farmers to invest in crop production and allied activities while improving their livelihoods.

Combined with the Modified Interest Subvention Scheme, which offers loans up to ₹3 lakh at an effective interest rate of 4%, the increase in collateral-free loan limits strengthens financial inclusion and supports the government’s broader vision for sustainable agricultural development. By simplifying loan disbursement processes, the RBI aims to foster credit-driven growth, contributing to the long-term economic stability of the rural and agricultural sectors.

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