Budget 2025-26: Higher loan limit may benefit 10% of KCC accounts

One of the big Budget announcements of expanding the Kisan Credit Card (KCC) loan limit for farmers from Rs 3 lakh to Rs 5 lakh will apply only to accounts that have a good repayment track record and those primarily engaged in commercial farming. This number as of now is 8 million of the total 77.7 million KCC accounts, said senior government officials. 

This would mean that the additional subsidy burden due to the interest subvention could marginally be more than the FY26 Budget Estimates of Rs 22,600 crore to around Rs 26,000 crore, thus not causing undue burden on banks. 

“Of the total 77.7 million KCC accounts operative in the country, only about 8 million will be impacted (by the expansion), specifically those with borrowings of three lakh and above. Most of these borrowers have a strong track record of repayment efficiency, so there will be no burden on the banks,” department of financial services secretary M Nagaraju told Business Standard in a recent interview. 

This, in percentage terms, amounts to around 10.3 per cent of the total KCC account holders in the country. 

Even now, KCC loan limits are also gradually expanded periodically based on the repayment capacity and overall credit profile of the customer. 

The Centre introduced the KCC to enable farmers to meet their short-term working capital requirements promptly and hassle-free. This has helped enhance working capital flow to agriculture and allied sectors. 

As of March 2024, the country has 77.5 million operational KCC accounts with a loan outstanding of Rs 9.81 trillion. 

KCC was further extended to meet the working capital needs of fisheries and animal husbandry in 2018-19. There was also an enhancement of the limit for collateral-free loans to Rs 1.6 lakh. 

In addition to interventions such as the Modified Interest Subvention Scheme (MISS), which provides short-term agri-loans through KCC at a concessional interest rate of 7 per cent, the Prompt Repayment Incentive (PRI) provides a 3 per cent incentive to farmers who repay on time. 

 

Starting FY25, the claim processing has been digitised through the Kisan Rin Portal for faster and more efficient capturing and settlement of MISS claims. 

The MISS offers concessional short-term agri-loans to farmers for crop and allied activities, providing a 7 per cent interest rate on loans up to Rs 3 lakh, with an additional 3 per cent subvention for timely repayment, reducing the effective rate to 4 per cent.

MISS also includes post-harvest loans against negotiable warehouse receipts (NWRs) for small farmers with KCCs. 

Data shows that the number of operative KCC cards rose by 5.4 per cent during end-March 2024 over the previous year while the outstanding amount increased by 10.9 per cent, according to the RBI annual report data. 

The amount outstanding under operative KCC also registered an improvement in growth to 10.7 per cent during 2023-24 from 8.8 per cent in the previous year. It was mainly led by the southern region. This region also had highest share of outstanding under KCC. 

Although its growth decelerated to 13.2 per cent during 2023-24 from 18.3 per cent in the previous year, it remained above the all-India expansion rate, according to the latest RBI data. 

Overall, RBI data shows that, as of March 2024, gross non-performing assets (gross NPAs) of the agriculture sector rose to 28.4 per cent of the total NPA from 25.4 per cent, as on March 2023.

 

Though, in absolute terms, there was a fall. The total NPA as of March 2024 was pegged at Rs 4.56 trillion.