Credit to Agriculture Sector Set to Cross Rs 31.5 Lakh Crore in FY26
MUMBAI, 14 May 2025: Agricultural credit is poised to reach new heights in FY26, with commercial banks and regional rural banks expected to extend over Rs 31.5 lakh crore in loans to the sector. This marks a significant milestone for the Indian agriculture sector and reflects the ongoing formalization of the rural credit structure, according to a senior official at the National Bank for Agriculture and Rural Development (NABARD).
Ajay K. Sood, Deputy Managing Director of NABARD, shared that in FY25, the bank had already disbursed over Rs 28.98 lakh crore through commercial banks, cooperatives, and regional rural banks. Of this, nearly 60% was allocated to short-term crop loans, with the remainder directed toward investment loans in agriculture and allied sectors. "We expect the total agri-credit flow in the current fiscal year to be around Rs 31.5 lakh crore," Sood said in an interview with the Financial Express.
Despite the significant increase in credit flow to the agriculture sector, NABARD is actively addressing regional imbalances in credit distribution. The bank is focusing on preparing Potential Linked Credit Plans (PLPs) to ensure balanced credit access across all regions. "We are working with banks to improve the credit culture, especially in northeastern India, by providing collateral in the form of social guarantees, specialized funds, and insurance products," Sood added.
NABARD is also in discussions to offer special refinance terms for "aspirational districts," where interest rates could be lowered. Additionally, financial assistance for tenant farmers is being explored. These efforts are part of a broader strategy to enhance credit flow to priority sectors such as crop loans and term loans for agricultural enterprises.
In January 2025, NABARD Chairman Shaji K. V. noted that the growing flow of agricultural credit is diminishing the role of informal credit sources. "Over the past decade, the average annual growth in agricultural credit has been in double digits, at 13%," he stated. Typically, commercial banks account for 75% of the total credit flow, while cooperatives and regional rural banks contribute the remainder.
One of the key initiatives for farmers is the Modified Interest Subvention Scheme (MISS), which provides loans of up to Rs 3 lakh at an interest rate of 7% per annum to those holding Kisan Credit Cards (KCCs). The scheme offers an additional 3% interest subvention for prompt repayment, effectively reducing the interest rate to 4%. For the 2025-26 fiscal year, the government has increased the agri-credit limit for KCC holders to Rs 5 lakh annually.
MISS also includes post-harvest loans against negotiable warehouse receipts (NWRs) for smallholder farmers with KCCs. Currently, there are 77.1 million operational KCC holders, including 1.24 lakh KCCs for fisheries and 44.4 lakh KCCs for animal husbandry.
While KCC loans for allied activities other than crop husbandry are capped at Rs 2 lakh, the broader aim is to ensure equitable credit distribution across different sectors. Recently, Niti Aayog member Ramesh Chand called for establishing a criteria for allocating farm credit to state governments based on their respective agricultural outputs. This move is intended to prevent the concentration of subsidized short-term crop loans in select states and to curb the diversion of funds for non-agricultural purposes.
The continued rise in agri-credit reflects the government's ongoing efforts to formalize and expand the credit ecosystem, ensuring that farmers and agricultural enterprises across India receive the financial support they need for growth and sustainability.
Image credit: indiamart.com
