Agricultural sector likely to see relief due to increase in KCC loan limit

Agriculture

Through the Kisan Credit Card (KCC) scheme announced in Budget 2025, the Centre has increased the loan limit for individual farmers from Rs 1.6 lakh to Rs 3 lakh.

Agricultural sector, which had been under stress for a reasonable period of time is likely to see some relief, thanks to the increase in KCC loan limits, thereby helping 17 million farmers," said Akshay Tiwari, Research Analyst - BFSI at Asit C Mehta Investment Intermediates Ltd.

The Reserve Bank of India (RBI) has consistently highlighted the challenges faced by the agricultural sector in India. In its Annual Report for FY24, the RBI noted that the share of agriculture and allied activities in India's GDP has declined to 22 percent, less than half of what it was in the past, indicating a diminishing contribution to the overall economy.

In the 2024-25 Budget, the focus was on expanding the reach of the KCC scheme, enhancing access to credit for underserved farmers, and promoting digital applications for easier loan disbursement. However, Budget 2025 takes this further increasing the loan limit for individual farmers.

The budget has also proposed extending the KCC scheme to an additional 10 million farmers across the country, making formal financial assistance available to a larger segment of the farming community.

In an attempt to ease the financial burden on farmers, the government has proposed extending the interest subvention scheme for timely repayment of KCC loans, which means, farmers who repay their loans on time will continue to receive an interest subsidy of 2 percent annually.

Additionally, those who repay their loans within a year will be eligible for an additional 3 percent incentive, effectively lowering the interest rate to 4 percent.

The government has also allocated resources for promoting digital literacy among farmers, aiming to make the KCC scheme more accessible, the Budget report said.

The government is also facilitating collaboration between commercial banks, the National Bank for Agriculture and Rural Development (NABARD), and regional rural banks to ensure the efficient disbursement of KCC loans.

These partnerships are expected to expedite the loan approval process and reduce delays in credit distribution, the report added.

"Under this program, targeted initiatives like the Developing Agri Districts Programme and the KCC Mission for Cotton Productivity will empower 1.7 crore farmers in 100 districts by improving crop yields, fostering Farmer Producer Organisations (FPOs), and ensuring climate resilience," said Umesh Revankar, Executive Vice Chairman of Shriram Finance.

However, experts also caution whether the increase in loan limits may translate to higher lending towards the sector, given that loan losses for a over two years in a row has been upwards of 10 percent.

As a banker whom Moneycontrol spoke to said, with losses showing not much signs of tapering in the near-term, banks, especially those in the private sector may hesitate to increase their exposure to Kisan Credit Cards due to elevated defaults.

However, Budget 2025 takes this further increasing the loan limit for individual farmers.