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Government & RBI increase limits of collateral free loans

ICICIdirect Research 20 Dec 2024 DISCLAIMER

RBI has recently announced increase in limit for collateral free loan for agriculture from ₹1.6 lakh to ₹2 lakh, effective from 1st January 2025. This decision has been undertaken to address pressure of escalating cost in agriculture for small and marginal farmers who account for over 86% of farming community. Consequently, banks are been advised to waive collateral and margin requirement for loans under mentioned threshold in a timely manner.

Government is embarking on increasing limit under zero collateral housing loan scheme for low & middle income groups. Currently, eligible borrowers are offered collateral free loan upto ₹7 lakh without collateral; this limit is expected to be revised to ₹20 lakhs with minimal documentation or third party guarantee.

Increase in credit guarantee limit increasing the scope of the scheme bringing in higher number of beneficiaries in the ambit of financialization. From lenders perspective, increase in guarantee is seen aiding business growth in specific retail segments as the schemes provides cushion against asset quality shocks by providing guarantee. Largely, we expect banks, especially public sector banks and HFC engaged in affordable housing should remain as beneficiaries of extension in credit limits.

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