RBI MPC meet: Farmers to get bigger collateral-free loans, more banks to offer credit through UPI

In a bid to boost rural credit, the Reserve Bank of India (RBI) has decided to raise the limit for collateral-free agriculture loans to ₹2 lakh per borrower from the existing ₹1.6 lakh.

Announcing the fifth bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das on Friday said the limit, last revised in 2019, has been increased considering the rising cost of agricultural inputs and overall inflation.

The enhanced credit availability is expected to benefit small and marginal farmers, who make up a significant portion of the agricultural sector.

"Taking into account the rise in agricultural input costs and overall inflation, it has been decided to increase the limit for collateral-free agriculture loans from ₹1.6 lakh to ₹2 lakh per borrower. This will further enhance credit availability for small and marginal farmers," Das said.

The RBI also expanded the scope of pre-sanctioned credit lines through the Unified Payments Interface (UPI) to include Small Finance Banks (SFBs).

The credit line facility on UPI, launched in September 2023, was previously available only through Scheduled Commercial Banks (SCBs). Allowing SFBs to offer pre-sanctioned credit lines is expected to deepen financial inclusion and enhance formal credit access, particularly for “new to credit” customers, Das said.

As part of additional measures, Das also announced an expansion in the reach of the forex-Retail Platform through linkages with Bharat Connect.

Das said with the objective of bringing greater transparency and fairness in the pricing of foreign exchange for users, especially for individuals and the Micro, Small and Medium Enterprises, the Clearing Corporation of India Limited (CCIL) launched the FX-Retail platform in 2019.

Presently, the FX-Retail platform is accessible through an internet-based application, he said, adding that it is proposed to facilitate the linking of the FX-Retail platform with Bharat Connect (earlier known as Bharat Bill Payment System) operated by the NPCI Bharat Connect.

The central bank will soon be issuing circulars giving effect to the announcements.