In a move aimed at supporting farmers amid rising agricultural costs, the Reserve Bank of India (RBI) has announced an increase in the collateral-free agricultural loan limit from Rs. 1.6 lakh to Rs. 2 lakh. Effective from January 1, 2025, this decision is expected to provide much-needed financial relief to millions of farmers across the country, according to a statement from the Ministry of Agriculture.

The hike comes in response to ongoing inflationary pressures that are severely affecting the agricultural sector. Small and marginal farmers, who make up over 86% of India's farming community, often face difficulties in accessing credit. By raising the loan ceiling, the RBI aims to improve access to credit without requiring collateral, giving farmers with limited assets a vital lifeline.

The new limit also applies to loans for allied agricultural activities, allowing farmers to diversify their sources of income. Banks have been instructed to waive collateral and margin requirements for loans within the updated ceiling. The RBI has urged banks to implement these revised guidelines swiftly to ensure that farmers receive timely support.

To further the impact of this initiative, banks will be launching awareness campaigns to educate farmers and other stakeholders about available financial options. Special emphasis will be placed on increasing the adoption of the Kisan Credit Card (KCC), which plays a key role in providing financial assistance to farmers.

This move complements other government measures, such as the Modified Interest Subvention Scheme (MISS), which offers loans of up to Rs. 3 lakh at a subsidized interest rate of 4% for prompt loan repayments. Together, these initiatives are designed to enhance sustainable agricultural practices and promote rural economic development.

Experts have welcomed the RBI’s decision as a crucial step towards greater financial inclusion for farmers. According to Binod Anand, a member of the government’s MSP Committee on Agriculture, the removal of collateral requirements is a game-changer for small and marginal farmers, boosting their confidence and investment in their farming operations.

The increased loan limit is expected to strengthen the agricultural sector and stimulate economic growth in rural areas.