The Reserve Bank of India's (RBI) recent decision to raise the limit on collateral-free agriculture loans was likely taken to ease the stress being faced by banks in their farm loan portfolios over the past two quarters, and to nudge them to get their books in order.
The RBI on 6 December notified banks to waive collateral security and margin requirements for agriculture loans, including loans for allied activities, up to ₹2 lakh per borrower, from ₹1.6 lakh earlier. The RBI had last hiked the limit from ₹1 lakh to ₹1.6 lakh in February 2019.
The increase in the limit of collateral-free farm loan will allow farmers and small borrowers to borrow more money, and also free up some of their collateral parked with banks, improving their repayment ability at a time when banks' small-ticket loan books are facing stress, experts said.
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