RBI Increases Collateral-Free Agriculture Loan Limit to Rs 2 Lakh
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Mumbai, Dec 6 (NationPress) The Reserve Bank of India (RBI) has announced an increase in the limit for collateral-free agriculture loans from Rs 1.6 lakh to Rs 2 lakh. This move aims to broaden the financial support for small and marginal farmers and allows small finance banks to offer pre-sanctioned credit lines via UPI to help small borrowers achieve better financial inclusion.
The announcement was made following the Monetary Policy meeting held on Friday.
Currently, banks are mandated to provide collateral-free agriculture loans up to Rs 1.6 lakh per borrower. This limit was previously raised from Rs 1 lakh in 2010 to Rs 1.6 lakh in 2019.
Considering the overall inflation and increasing agricultural input costs, the RBI stated, “It has been decided to increase the limit for collateral-free agriculture loans from Rs 1.6 lakh to Rs 2 lakh. This adjustment will enhance the access of small and marginal farmers to the formal credit system. A circular regarding this will be issued soon.”
Additionally, to promote greater financial inclusion, the RBI has authorized small finance banks (SFBs) to provide pre-sanctioned credit lines through UPI.
In September 2023, the scope of Unified Payments Interface (UPI) was broadened to allow pre-sanctioned credit lines to be linked through UPI, which could be utilized as a funding account by Scheduled Commercial Banks. However, Payments Banks, SFBs, and Regional Rural Banks remained excluded from this capability.
“The credit line on UPI has the potential to offer low-ticket, low-tenor products to ‘new-to-credit’ customers. SFBs utilize a high-tech, cost-effective model to reach the last mile customer and can significantly contribute to expanding credit access via UPI,” the RBI explained.
“Thus, it is proposed to allow SFBs to extend pre-sanctioned credit lines through UPI. Relevant guidelines will be forthcoming,” the RBI concluded in its statement.
