Credit to the agriculture sector from commercial banks and regional rural banks is set to cross a record Rs 32.5 lakh crore in FY26, driven by greater formalisation of rural lending and rising credit demand, Shaji KV, Chairman, Nabard, said

“The credit flow is robust, we will cross Rs 32.5 lakh crore in the current fiscal while there will be some impact on the credit flow during February-March, which will be factored into while projecting growth in credit flow in FY27,” Shaji told FE.

He said that there is no such thing as lack of demand for credit but more formalisation of lending is happening.

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.

Regional imbalance in the credit-flow

On the regional imbalance in the credit-flow, Shaji said the bank is trying to address it through fistrict-level Potential Linked Credit Plans to guide institutional credit toward priority sectors, including crop loans and term finance for agriculture and allied activities.

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.

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.

Other regions – north (14.9%), east (8.2%), central (13.7%) and west (14%) have a smaller share in the total agri loans disbursed. In terms of gross cropped area of the country these regions – north (20%), east (12%), central (28%) and western (17%) have much larger areas.

What does Nabard data suggest?

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.

Under the modified interest subvention scheme of the agriculture ministry, short-term agricultural loans to farmers is provided at a concessional interest rate of 7% to kisan credit card (KCC) holders.

Farmers who repay promptly receive an additional 3% incentive, effectively reducing their interest rate to just 4%.

According to official data, a total of 457 banks has been onboarded under the KCC platform, including 37 commercial banks,46 regional rural banks, and 374 cooperative banks. 

The limit for collateral free short-term agricultural loans, including loans for allied activities, has been raised from Rs.1.60 lakh to Rs.2 lakh per borrower by RBI since January, 2025.

At present, 77.2 million KCCs are active, including 1.24 lakh for fisheries and 4.4 lakh for animal husbandry, with an outstanding credit amounting to Rs. 10.2 lakh crore.

Under the KCC, term loans and composite credit limits are structured differently for marginal and non-marginal farmers, taking into account their landholding size, investment capacity, and livelihood requirements, according to an official note.