Credit to the agriculture sector from commercial banks and regional rural banks is set to exceed a record Rs 32.5 lakh crore in FY26, driven by greater formalisation of rural lending and rising credit demand, according to Nabard. Banks disbursed Rs 14.51 lakh crore in farm loans in the first half of FY26.
Role of Commercial Banks and KCCs
Financial institutions are expected to meet the agriculture credit target of Rs 32.5 lakh crore for 2025–26, the agency said. In FY25, commercial banks, cooperatives and regional rural banks together extended Rs 28.69 lakh crore, with about 60% going to short-term crop loans and the rest to investment credit for agriculture and allied sectors.
Despite a decade of double-digit growth, credit distribution remains uneven. Southern states accounted for 48% of the more than Rs 28 lakh crore in agricultural loans disbursed in FY25, even though Andhra Pradesh, Telangana, Karnataka, Kerala and Tamil Nadu together hold only about 17% of the country’s gross cropped area.
Tackling Regional Disparity
According to an analysis by Nabard, the regional disparity in credit flow can be attributed to factors including weak rural financial institutional infrastructure and lower credit absorption due to low level financial literacy across states.
Nabard, which refinances banks based on their on-ground lending, is sharpening its focus on productivity improvements and agri–value-chain financing. To narrow regional gaps, it plans to leverage existing frameworks such as the SHG–Bank Linkage Programme, Joint Liability Groups, micro-enterprise and livelihood development programmes, skill initiatives and farmer-producer organisations.
In FY25, about 55% of total agricultural credit went to short-term crop loans, including Rs 6.5–Rs 7 lakg crore disbursed through Kisan Credit Cards (KCC). Commercial banks typically account for more than 75% of total agricultural lending, with cooperatives and regional rural banks covering the remainder.
Under the agriculture ministry’s Modified Interest Subvention Scheme (MISS), KCC holders can access loans of up to Rs 3 lakh at 7% interest for working-capital needs, with an additional 3% subvention for prompt repayment, bringing the effective rate to 4%. At present, 77.1 million KCCs are active, including 1.24 lakh for fisheries and 44.4 lakh for animal husbandry. For allied activities other than crop husbandry, the short-term loan limit is capped at Rs 2 lakh. Disbursements under the scheme totalled Rs 17,811 crore in FY25.
To address regional credit gaps, Nabard prepared 782 district-level Potential Linked Credit Plans in FY25. It continues to anchor annual district-wise PLPs to guide institutional credit toward priority sectors, including crop loans and term finance for agriculture and allied activities.
