Limit of collateral-free farm loans increased

To boost liquidity in the farming sector, particularly among small and marginal farmers, the RBI on Thursday announced increasing the limit on collateral-free agriculture loans to ~1.6 lakh from ~1 lakh.

In 2010, the collateral-free limit for crop loans and term loans was hiked from ~50,000 to ~1 lakh.

The RBI said that move has been taken “keeping in view the overall inflation and rise in agriculture input costs” since 2010. “This will enhance coverage of small and marginal farmers in the formal credit system,” the RBI said. It also decided to set up an internal working group to review agricultural credit and address issues such as regional disparity, and extent of coverage, among others.

The government has disbursed over ~11 trillion of agricultural loans till the middle of December 2018 of which a sizeable chunk — almost 50 per cent — was cornered by Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Punjab, Rajasthan, and Maharashtra. In big states, like Uttar Pradesh, data shows there is wide regional disparity when it comes to availing institutional credit.

“This will enhance liquidity in the system and will enable farmers to invest more,” said Shiraz Hussain, former agriculture secretary.

But with banks facing the problem of spiralling non-performing assets (NPAs), expanding the limit of collateral-free loans for the farm sector could hurt them more.

“The hike in limit was essential for farmers, as the support prices and input costs have gone up. I don’t see this move leading to any spike in NPAs,” Mrutyunjay Mahapatra, MD and CEO, Syndicate Bank, said.