The Reserve Bank of India (RBI) has directed banks to waive collateral security and margin requirements for agricultural loans, including loans for allied activities, up to ₹2 lakh per borrower, according to its latest directions on the Kisan Credit Card (KCC) scheme reported by The Hindu BusinessLine on June 19, 2026.
Key Provisions of the RBI Directive
The central bank's guidelines cover several aspects of collateral-free lending to the agriculture sector. For agricultural loans up to ₹2 lakh per borrower, banks must waive both collateral security and margin requirements. This applies to loans for allied activities such as animal husbandry, fisheries, etc., as well as crop cultivation.
For Kisan Credit Card loans extended against hypothecation of crops or stock and involving tie-up arrangements for recovery, the collateral waiver limit is increased to ₹3 lakh. Banks may waive collateral security for such loans up to this higher limit.
RBI clarified that the guidelines on collateral-free lending "pertain only to secondary collateral and not primary security or assets financed by the loan." Banks can decide collateral security and margin requirements for loans above ₹2 lakh as per their own credit policy.
Gold and Silver Pledge
In a related provision, the RBI stated that voluntary pledge of gold and silver as collateral for agriculture loans up to the collateral-free limit will not be considered a violation of the guidelines on collateral-free lending. However, banks must obtain and retain an explicit declaration from the borrower in such cases.
KCC Sub-Limits and MPL Calculation
Considering the different interest rates and repayment schedules applicable to various types of credit provided under the KCC scheme, the facility may be divided into sub-limits. These sub-limits cover:
- Short-term cash credit limit-cum-savings accounts for crop cultivation and allied activities separately
- Long-term loans for agriculture and allied activities
For short-term crop loans, the maximum permissible limit (MPL) is calculated on a notional basis. From the second crop season onwards, the MPL is arrived at by adding 10% to the limit of the previous crop season. In case the drawing limit exceeds the MPL in any crop season or year, the MPL will be reassessed at the time of review.
Flexi KCC for Marginal Farmers
Marginal farmers are eligible for a flexible credit limit of ₹10,000 to ₹50,000 under the Flexi KCC facility. This limit is assessed by the bank without relating it to the value of the land. The credit limit shall be based on crops grown, post-harvest warehouse storage related credit needs, other farm expenses, consumption needs, and investment requirements for agriculture and allied activities.
| Loan Type | Collateral Waiver Limit |
|---|---|
| Agricultural loans (including allied activities) | Up to ₹2 lakh per borrower |
| KCC loans against hypothecation with tie-up arrangements | Up to ₹3 lakh |
| Flexi KCC for marginal farmers | ₹10,000 – ₹50,000 |
Implications for Agricultural Credit
The directive significantly reduces the collateral burden for small and marginal farmers, potentially easing access to formal credit. By mandating collateral waiver for loans up to ₹2 lakh, the RBI aims to streamline lending under the KCC scheme and reduce dependence on informal sources. Banks, however, must ensure ongoing monitoring of end-use of all agriculture advances, as required by the central bank. The move strengthens the regulatory framework for farm credit while giving banks flexibility for larger loans.
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