RBI asks banks to waive collateral requirements for agricultural loans up to ₹2 lakh per borrower

The Reserve Bank of India directed banks to waive collateral and margin requirements for crop loans and allied agricultural activity loans up to ₹2 lakh per ...

What Happened

The Reserve Bank of India directed banks to waive collateral and margin requirements for crop loans and allied agricultural activity loans up to ₹2 lakh per borrower, raised from the earlier threshold of ₹1.6 lakh.
The revision is effective from January 1, 2025, and is incorporated into the updated KCC (Kisan Credit Card) draft guidelines issued in 2026 as a formal codification of this norm.
The revision acknowledges the impact of input cost inflation — higher prices for seeds, fertilisers, pesticides, and labour mean that a ₹1.6 lakh limit has been increasingly insufficient to cover the actual credit needs of small farmers, who must otherwise pledge land or assets as collateral, a significant barrier to access.
The measure specifically benefits small and marginal farmers, who constitute over 86% of India's agricultural landholdings (holdings below 2 hectares), and who typically lack the collateral assets that medium or large farmers can pledge.
Under the revised norm, any agricultural or allied activity loan up to ₹2 lakh requires no collateral security and no margin (own contribution) from the borrower — the loan is extended purely on the basis of the borrower's creditworthiness and land records.

Static Topic Bridges

Collateral Requirements in Agricultural Lending

Collateral (security) is an asset pledged by a borrower to secure a loan. For agricultural loans, collateral typically takes the form of hypothecation of crops, mortgage of land, or other assets. The RBI's Master Directions on Priority Sector Lending and the NABARD guidelines govern the collateral framework for agricultural credit.

For loans above the collateral-free threshold: banks may require third-party guarantee or tangible security (land mortgage, gold)
For loans below the threshold: collateral waiver is mandatory — banks cannot insist on security
'Margin': the portion of the loan amount that the borrower must fund from own resources (e.g., 15–25% margin means borrower contributes that share, bank finances the rest). Below ₹2 lakh, this margin requirement is also waived
NABARD sets the normative collateral framework and provides refinance support to banks for these loans

Connection to this news: The raise from ₹1.6 lakh to ₹2 lakh reduces the threshold below which collateral is not required, directly expanding the universe of loans where small farmers need no security — addressing a primary barrier to formal credit access.

Financial Inclusion and Small & Marginal Farmers

India's agricultural landholding structure is characterised by extreme fragmentation. According to the Agricultural Census, small (1–2 ha) and marginal (<1 ha) farmers together account for over 86% of all operational holdings but control approximately 47% of total cultivated area. This skewed distribution means the vast majority of Indian farmers operate at a scale where collateral assets are limited and formal credit access has historically been difficult.

Small farmers: holdings between 1–2 hectares
Marginal farmers: holdings below 1 hectare
Combined share of operational holdings: over 86%
Average holding size in India: approximately 1.15 hectares (declining over decades due to inheritance subdivision)
Credit gap: A large proportion of small/marginal farmers still depend on informal moneylenders who charge 24%–60% interest per annum; formal credit access is transformative
KCC interest subsidy: Government of India provides 2% interest subvention on short-term crop loans up to ₹3 lakh; additionally 3% prompt repayment incentive, making effective interest rate 4% for punctual repayers

Connection to this news: The collateral waiver limit increase specifically targets this demographic — the 86%+ of farmers who are small or marginal and are most likely to be deterred by collateral requirements when seeking formal credit.

NABARD's Role and the Agricultural Credit Architecture

The National Bank for Agriculture and Rural Development (NABARD) was established in 1982 (under the NABARD Act, 1981) as the apex development bank for agriculture and rural development. It provides refinance to commercial banks, RRBs, and cooperative banks for agricultural lending, sets prudential norms for farm credit, and monitors PSL compliance.

NABARD established: July 12, 1982 (operationally); statutory basis: NABARD Act, 1981
Parent recommendation: Shivaraman Committee (1979–81) recommended its creation
Key functions: Refinancing agricultural credit institutions, supervising RRBs and cooperative banks, development finance for rural infrastructure (RIDF)
NABARD issues master circular on KCC and agricultural credit norms, which banks must follow
RBI's PSL mandates 18% of ANBC to agriculture; NABARD tracks and reports compliance

Connection to this news: The collateral-free limit revision is implemented through RBI's Master Directions on PSL (Priority Sector Lending), which NABARD monitors and enforces. The revision aligns with NABARD's broader mandate of making agricultural credit accessible and affordable.

Key Facts & Data

Previous collateral-free agricultural loan limit: ₹1.6 lakh per borrower
Revised collateral-free agricultural loan limit: ₹2 lakh per borrower
Effective date of revision: January 1, 2025
No collateral AND no margin required for loans up to ₹2 lakh
Small and marginal farmers' share of operational holdings: over 86%
Approximate average land holding size in India: ~1.15 hectares
Government interest subvention on crop loans up to ₹3 lakh: 2% p.a. (3% additional for prompt repayment → effective rate 4% p.a.)
PSL agriculture target: 18% of ANBC; Small & Marginal Farmer sub-target: 10%
NABARD established: 1982; under NABARD Act, 1981
Loans above ₹2 lakh: banks may require collateral (land mortgage, third-party guarantee)