RBI Issues Draft Guidelines for Small Finance Banks' KCC Operations Under New Directions 2026
The Reserve Bank of India has released comprehensive draft guidelines under the Reserve Bank of India [Small Finance Banks – Kisan Credit Card (KCC) Scheme] Directions, 2026, exercising powers under Section 21 and Section 35A of the Banking Regulation Act, 1949. These guidelines establish a unified operational framework governing how Small Finance Banks extend KCC facilities to farmers and allied sector participants.
Consolidated Six-Year Credit Facility Structure
The new framework introduces an integrated six-year financing arrangement that encompasses multiple credit requirements of agricultural borrowers. This composite structure combines various credit needs into a single facility, eliminating the need for multiple loan applications and simplifying the borrowing process for rural beneficiaries.
Components of the Composite Facility
The KCC facility under these directions covers eight distinct components:
- Short-term financing for crop cultivation activities
- Working capital for pursuits related to agriculture including animal husbandry, fisheries, and aquaculture
- Expenditure incurred post-harvest or post-production
- Household consumption needs of farming families
- Asset maintenance costs and technological upgrade expenses
- Insurance premiums covering crops, assets, health, and accidents
- Marketing loans for agricultural produce
- Investment credit for long-term agricultural and allied activity requirements
Standardized Crop Season Framework
The directions establish uniform crop season definitions to bring consistency across lending operations. Short-duration crops are assigned a 12-month cultivation cycle, while long-duration crops receive an 18-month period extending through harvesting and marketing phases.
Credit Limit Determination Methodology
Calculation Basis for Drawing Limits
The framework links drawable limits directly to the Scale of Finance (SoF) determined by State Level Technical Committees for respective crops and activities. Banks calculate the base limit by multiplying the notified SoF by the cultivation area.
Beyond the base calculation, the directions mandate additional allowances:
- An extra 10% of the base amount addresses post-harvest expenses and household consumption needs
- A further 20% covers farm asset repairs, maintenance requirements, soil testing, weather forecasting services, and certification for organic or good agricultural practices
- Actual insurance premium costs are added separately
Flexibility in Crop Pattern Changes
The directions acknowledge the dynamic nature of agricultural practices. When farmers modify their cropping patterns in subsequent seasons, banks must recalculate drawing limits based on the newly proposed crops. In situations where SLTC has not notified the SoF for a particular season, banks shall apply a notional 10% increase over the previous season's SoF.
Collateral-Free Lending Provisions
A significant feature of these directions is the expanded collateral-free lending threshold. Banks are instructed to waive collateral security requirements for agricultural advances up to ₹2 lakh per assessee. This limit extends to ₹3 lakh in specific circumstances involving hypothecation of crops or stock with tie-up arrangements for recovery.
Voluntary Pledge Exception
The directions clarify that voluntary pledging of gold or silver as security for loans within the collateral-free limit does not violate the collateral-free lending guidelines, provided banks obtain and retain explicit borrower declarations.
Eligibility Framework
For Crop Cultivation Credit
The following categories qualify for working capital credit for crop cultivation:
- Individual farmers or joint borrowers who cultivate their own land
- Tenant cultivators, including those with oral lease agreements and sharecroppers
- Self-Help Groups (SHGs) and Joint Liability Groups (JLGs) comprising farmers, tenants, and sharecroppers
For Allied Activities Financing
Individuals engaged in animal husbandry, fisheries, fish farming, and other allied activities as defined in the directions qualify for working capital support. SHGs and JLGs formed by such individuals also remain eligible.
Special Provisions for Marginal Farmers
The directions recognize the unique requirements of marginal farmers by introducing "Flexi KCC" with flexible limits ranging from ₹10,000 to ₹50,000. This flexible limit is determined based on land holding size and crops grown, according to the bank's assessment. Banks may revise these limits upward when changes in cropping patterns or scale of finance warrant higher amounts.