- New Loan Limit: Collateral-free loans for farmers will increase from Rs 1.6 lakh to Rs 2 lakh from January 2025.
- Impact on Small Farmers: The decision is aimed at aiding small and marginal farmers who face financial strain due to high agricultural input costs.
- Financial Inclusion: This move is expected to improve credit accessibility and promote financial inclusion in the agricultural sector.
- Complementary Measures: The new loan scheme aligns with the government’s Modified Interest Subvention Scheme, which offers loans up to Rs 3 lakh at a reduced interest rate of 4%.
Source
The Reserve Bank of India (RBI) has announced an increase in the collateral-free loan limit for farmers from Rs 1.6 lakh to Rs 2 lakh, set to take effect from January 1, 2025. This decision is part of a broader effort to provide financial relief to small and marginal farmers who are struggling with rising input costs.
The Agriculture Ministry stated that this decision was prompted by the increasing input costs and the necessity to enhance credit access for farmers. “This measure will significantly benefit over 86 per cent of farmers who are small and marginal landholders,” the statement said.
Why This Matters:
This initiative is a significant step towards improving the financial stability of farmers, especially those with small and marginal land holdings. With inflationary pressures driving up the costs of farming inputs, the increased loan limit will provide much-needed financial support, allowing farmers to invest in agricultural operations, improve productivity, and secure their livelihoods.
Agri-experts consider this move a key strategy to boost agricultural growth by making credit more accessible, ultimately helping reduce the financial strain on farmers and supporting India’s agricultural economy.
Read in detail: What is Collateral Loan, and How Does it Work
Impact on Kisan Credit Cards (KCC)
The increase in the loan limit is expected to simplify access to Kisan Credit Card (KCC) loans. KCC is a widely used financial product for farmers, providing them with easier access to credit for purchasing agricultural inputs and managing day-to-day expenses. The new guidelines will make KCC loans more accessible and flexible, offering farmers better financial security.
Additionally, the government’s Modified Interest Subvention Scheme offers loans of up to Rs 3 lakh at a 4% effective interest rate. This will further complement the RBI’s decision, enabling farmers to access low-interest loans for agricultural activities.
Table: Loan Limits and Provisions
| Loan Type | Current Limit | New Limit (Effective Jan 2025) | Requirements |
|---|---|---|---|
| Collateral-Free Loans | Rs 1.6 Lakh | Rs 2 Lakh | No collateral or margin requirement |
| Kisan Credit Card (KCC) | Rs 3 Lakh | Rs 3 Lakh | Interest subvention scheme available |
| Interest Subvention Scheme | 4% Effective Rate | 4% Effective Rate | Available for loans up to Rs 3 Lakh |
This increase in the loan limit is expected to ease the financial burden on small farmers, making it easier for them to continue with their agricultural practices without the added stress of securing collateral for loans.
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