RBI Increases Bank Limits For Collateral-Free Agri Loans To Rs 2 Lakh

The Reserve Bank of India has increased the limit for collateral free agricultural loans to Rs 2 lakh per borrower from Rs 1.6 lakh, Governor Shaktikanta Das said during the announcement of the monetary policy.

The last time the central bank had revised these limits was in 2019 from Rs 1 lakh set in 2010 to Rs 1.6 lakh. The latest revision has come on the back of a rise in agricultural input costs and overall inflation.

This will further enhance credit availability for small and marginal farmers in the formal credit system, Das said, adding that the circular to this effect will be issued shortly.

In October, credit to agriculture and allied activities clocked a growth of 15.5% on year as compared with 17.4% in the same period a year ago, according to the RBI data.

This has come as inflation has been on the rise. In October, headline Consumer Price Index inflation surged to 6.2% from 5.5% in September led by a sharp rise in food inflation and uptick in core inflation.

Expectations are that the inflation will remain high as the RBI's Monetary Policy Committee also revised CPI inflation for the current financial year to 4.8%, up from the earlier projection of 4.5%.

The CPI is seen at 5.7% and 4.5% in the final two quarter in the ongoing financial year, while it is seen at 4.6% and 4% in the first and second quarter of the next financial year.

The RBI MPC kept the repo rate unchanged at 6.5% with a majority of 4:2, and maintained a neutral stance. To ease potential liquidity stress, cash reserve ratio has been cut by 50 basis points to 4%.