Govt likely to hike short term loans for KCC holders from next fiscal

The finance minister’s Nirmala Sitharaman’s last year’s budget announcement of increasing short term loan limits for over 77 million Kisan Credit Card (KCC) holders from Rs 3 lakh to Rs 5 lakh is likely to be rolled out from next fiscal.

Officials sources told FE that an external evaluation for the interest subvention for agricultural credit aimed at meeting working capital requirements of the farmers has been completed as mandated for all the central schemes prior to the end of FY26 — coinciding with the fifteenth finance commission period.

“The evaluation report for interest subvention scheme is being taken up by the expenditure finance committee. We are expecting to roll out increase in short term credits for KCC holders starting next fiscal,” an official told FE.

However sources said that average short term credit flow for each KCC holder is around Rs 1.6 lakh at present.

What did Nirmala say in her last budget speech?

Finance minister Nirmala Sitharaman in her budget speech for 2025-26 had said “KCC facilitates short term loans for 77 million farmers, fishermen, and dairy farmers. The loan limit under the modified interest subvention scheme (MISS) will be enhanced from Rs 3 lakh to 5 lakh for loans taken through the KCC.”

Under the modified interest subvention scheme  (MISS) of the agriculture ministry, 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%.

Number of active KCCs

At present, 77.1 million KCCs are active, including 1.24 lakh for fisheries and 4.44 million for animal husbandry. For allied activities other than crop husbandry, the short-term loan limit is capped at Rs 2 lakh.

Disbursements under the MISS was Rs 17,811 crore in FY25. Currently farmers avail 72% of their credit link from institutional sources such as banks and financial institutions.

During 2020-21 to 2024-25, farmers have availed Rs 89,328 crore as interest subvention on loans.

Nabard has projected that 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.

The total agri-credit flow has grown from Rs 15.75 lakh crore in FY21 to Rs 28.67 lakh crore in 2024–25. Out of which, credit disbursed to small and marginal farmers has grown from Rs. 8.71 lakh crore to Rs. 14.77 lakh crore during this period

The objectives of the MISS is to ensure timely and affordable credit to farmers, enhancing agricultural productivity, promoting financial inclusion, and reducing farmers’ dependence on non-institutional sources of credit, according to an official note.

“By providing interest subvention on short-term crop loans and additional incentives for prompt repayment, the scheme lowers the cost of credit, improves liquidity at the farm level, and supports investment in agricultural and allied activities,” it stated.

Since January, 2025, RBI has increased collateral free loan limit in KCC to Rs 2 lakh from Rs 1.6 lakh. This move enhances credit accessibility, particularly for small and marginal farmers, who benefit from reduced borrowing costs and the removal of collateral requirements.

Agricultural credit flow (Rs/lakh crore)

Interest subvention provided to KCC holders (Rs/crore)

*so far