New Delhi: The Reserve Bank of India (RBI) Thursday raised the limit of collateral-free agricultural loans to Rs 1.6 lakh from the current Rs 1 lakh with a view to help small and marginal farmers.

The central bank also decided to set up an internal working group (IWG) to review agricultural credit and arrive at a workable policy solution.  The Union Budget had also announced measures to boost the farming sector in addition to annual payment of Rs 6,000 to small and marginal farmers.

Currently, the banks are mandated to extend collateral-free agricultural loans up to Rs 1 lakh. This limit was fixed in the year 2010.

"Keeping in view the overall inflation and rise in agriculture input costs since then, it has been decided to raise the limit for collateral free agriculture loans from Rs 1 lakh to Rs 1.6 lakh.

"This will enhance coverage of small and marginal farmers in the formal credit system," said the central bank's 'Statement on Developmental and Regulatory Policies'. A circular in this regard will be issued shortly, it added.  It further said agricultural credit growth has been significant over the years.

In spite of this, there remain issues related to agricultural credit such as regional disparity and the extent of coverage, among others.

"There is also the issue of deepening long-term agricultural credit for capital formation," the RBI said while announcing setting up of the IWG. The IWG will examine issues related to agricultural credit and arrive at workable solutions and policy initiatives.