MUMBAI: The Reserve Bank of India (RBI) has announced an increase in the limit for collateral-free agri loans, including loans for allied activities, from the existing Rs1.6 lakh to Rs2 lakh per borrower.
This move aims to address the rising costs of agricultural inputs and overall inflation, ensuring that farmers and those engaged in allied activities have better access to credit.
Collateral-free loans serve as a crucial financial tool for small and marginal farmers, enabling them to access funds without pledging assets. The current threshold of Rs1.6 lakh was set by the RBI through a circular dated February 7, 2019.
Background
However, the increasing cost of inputs such as seeds, fertilizers, and equipment has prompted the need for an upward revision. Effective from January 1, 2025, banks will waive collateral security and margin requirements for agricultural loans up to Rs2 lakh per borrower.
This includes loans for allied activities such as dairy, poultry, and fisheries, reflecting the RBI’s commitment to supporting the broader agricultural ecosystem.
Banks have been directed to implement the revised instructions promptly and to ensure widespread awareness of the changes. Adequate publicity is expected to help farmers benefit from the enhanced credit flow without undue delays or hurdles.
Significance
The RBI’s decision underscores the importance of ensuring affordable and accessible credit for the agricultural sector.
The revision is expected to alleviate financial stress among farmers by improving their access to institutional credit. It also aligns with broader government and RBI efforts to support rural and agricultural development, critical for sustaining the livelihoods of millions and ensuring food security.
By raising the limit for collateral-free loans, the central bank not only addresses the immediate challenges of rising input costs but also promotes inclusive growth in the rural economy.
