Government may hike collateral-free loan to farmers under KCC to ₹2 lakh from ₹1.6 lakh
After announcing the credit limit hike under Kisan Credit Card (KCC) in the Budget for the 2025-26 fiscal, the government is likely to raise the limit of collateral free loan segment within KCC to farmers ₹2 lakh from₹1.6 lakh now. The credit limit for dairy and poultry farmers may also be raised to ₹5 lakh.
“The inter ministerial committee under Department of Financial Services (DFS) has already approved the proposal for raising the limit. However, as the government cannot take a business decision for the banks, the matter has been referred to the Reserve Bank of India (RBI) to put it as guideline,” a banking source said.
Earlier, when the credit limit was ₹3 lakh under KCC, the limit for each section was different, such as ₹2 lakh limit for dairy farmers, the source said.
During her Budget speech on February 1, Finance Minister Nirmala Sitharaman had said: “KCCs facilitate short term loans for 7.7 crore farmers, fishermen, and dairy farmers. The loan limit under the Modified Interest Subvention Scheme (MISS) will be enhanced from ₹3 lakh to ₹5 lakh for loans taken through the KCC.”
Sops for prompt payment
While the Centre bears 2 per cent of interest amount as subsidy under short-term crop loans, there is additional 3 per cent subsidy (under MISS) provided to farmers on prompt repayment within one year, effectively making the lending rate to 4 per cent. However, some States also announce further subsidy on interest rate, over and above the Central assistance, to farmers.
Financial Services Secretary M Nagaraju said the enhancement of limit will ensure credit deepening in agriculture and reduce the dependency on non-institutional credit.
The announcement will incentivise farmers having KCC loans up to ₹3 lakh to seek larger KCC concessional credit limit up to ₹5 lakh. Benefits of subsidised interest are available to working capital loans for allied activities like Animal Husbandry, Dairying and Fisheries from FY19.
The enhancement in loan limit will encourage farmers to diversify to allied activities, primarily benefitting small and marginal farmers, Nagaraju said. Currently, approximately 11 per cent of KCC accounts have operative KCCs with loans above ₹3 lakh. Therefore, more than 80 lakh farmers will get immediate benefit from the budget announcement, he said.
Agri credit target up
Total number of operative KCC accounts as of September 30, 2024, was 7.72 crore with total outstanding amount of ₹9.99 lakh crore. It is projected to enhance the operative KCC loan amount to more than ₹11 lakh crore for FY26.
After exceeding the target of agriculture credit in 2023-24, the government had substantially hiked the target for FY25 at ₹27.5 lakh crore which includes ₹16 lakh crore working capital crop loan and ₹11.5 lakh crore term loan. There has been separate target of ₹4.2 lakh crore fixed for allied sector within the overall target.
While current year credit target for dairy sector is ₹1.75 lakh crore, it is ₹1.24 lakh crore for animal husbandry and other related activities. Similarly, the credit target for sheep, goat and piggery is ₹50,000 crore, for poultry ₹36,000 crore and for fisheries ₹35,000 crore.
In 2023-24, the agriculture credit disbursal was ₹25.49 lakh crore against a target of ₹20 lakh crore and the share of crop loan (in total disbursal) was over 59 per cent at ₹15.08 lakh crore.
Farmers also have the option to benefit from livestock insurance, personal insurance, asset insurance and health insurance (wherever the product is available). The loan is in the form of revolving cash credit; thereby, farmers are able to withdraw and repay funds as needed, based on their cash flow and income generation patterns.