In a move that will provide a fillip to credit flow to agriculture sector, the Reserve Bank of India (RBI) today raised the collateral-free loan limit to the farmers to ₹2 lakh per borrower from ₹1.6 lakh earlier.

The move comes on the back of the rising input cost due to high inflationary pressure in the economy. “Keeping in view the overall inflation and rise in agriculture input cost over the years, it has been decided to raise the limit for collateral free agricultural loans including loans for allied activities from the existing level of ₹1.6 lakh to ₹2 lakh per borrower," RBI said in a release earlier today.  

“Accordingly, banks are advised to waive collateral security and margin requirements for agricultural loans including loans for allied activities up to ₹2 lakh per borrower,” the release added.

“The banks are advised to give effect to the revised instructions expeditiously and in any case not later than January 1, 2025. The banks are also advised to give adequate publicity to the above changes,” it added.

In the monetary policy statement today, RBI governor Shaktikanta Das said, “Agricultural growth is supported by healthy kharif crop production, higher reservoir levels and better rabi sowing. The limit for collateral free agricultural loans was last revised in 2019. Taking into account the rise in agricultural input costs and overall inflation, it has been decided to increase the limit for collateral-free agriculture loans from Rs 1.6 lakh to Rs 2 lakh per borrower. This will further enhance credit availability for small and marginal farmers.”

It may be noted that the agriculture sector was the best-performing sector of the economy in the second quarter of the current fiscal, even as growth in the other sectors of the economy like manufacturing, exports and remained tepid during the quarter.

In February 2019, too, in view of the overall inflation and rise in agriculture input cost over the years since 2010, RBI decided to raise the limit for collateral-free agricultural loans from ₹1 lakh to ₹1.6 lakh and directed the banks to waive margin requirements for agricultural loans up to ₹1.6 lakh.