Ministry of Agriculture and farmers welfare has sent various revised guidelines to the Reserve Bank of India (RBI) wherein the banks have been instructed to abolish collateral, mortgages, and margin deposits for farm loans amounting up to Rs 2 lakh, starting from January 2025. This revision was made on Saturday to help the agricultural sector, given the escalating costs of inputs and generally high inflation rates.
At present, agriculturist loans up to ₹1,60,000 are nil collateral, but many may ask for margin money from the borrower. The new rule increases the limit to ₹2 lakh, which provides more financial leverage to the farmers. “Given the trends of increase in the overall inflation and rise in price of inputs used in agriculture in the last few years there has been an enhancement of the collateral free loan limit up to ₹2 lakh per borrower for agricultural loans including loan for agricultural activities that are related,” the RBI also advised the banks.
Priority-sector lending-Agricultural credit: Cultivation or operative expenses form the fundamental reasons farmers seek funding in the agricultural industry. In the letter sent to all the commercial and cooperative banks, RBI Chief General Manager R. Giridharan underlined that lenders cannot demand collateral or margin for loans up to ₹2 lakh under this directive.
This change comes close on the heels of a similar change in February 2019 when the limit of collateral-free loans had been raised from ₹1 lakh to ₹1.6 lakh. The Modification instructs that at least 40% of the scheduled bank’s adjusted net bank credit, ANBC, or credit equivalent amount of off-balance sheet exposure, OBE, or any other measure fixed by the RBI must be funded to the priority sector, including agriculture.
This sub-sector is very important in the Indian economy, contributing about 18 percent of the country’s gross domestic product (GDP) and providing employment to about 45 percent of the manpower. The new enhancement of the collateral-free loan limit is intended to improve credit availability for agrarians, as well as support the expansion of this vital industry, according to the RBI.
Join our whatsapp group for Latest updates