Why Banks Do Not Fund Raw Agricultural Land (2026)

The short answer

There is no single law that forbids a bank from lending to buy farmland. Banks decline mostly because the land is hard to take as security, hard to value and hard to resell, and because buying farmland is restricted by state law. Lenders also have narrower, cheaper-to-run products for people who already farm.

This page separates what the sources say from our own reading. Where it is our reading, we say so.

The SARFAESI Act leaves out agricultural land

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) lets secured lenders take possession of and sell a defaulting borrower's secured asset without going to a civil court. Section 31(i) leaves out any security interest created in agricultural land. We read this wording in a LiveLaw column that quotes the section; we could not open the Act text on indiacode.nic.in.

The same column reports Supreme Court views on what counts as agricultural land. It says the test is the connection with an agricultural purpose and use, that a mere label is not enough, and that the revenue record is not conclusive. In Indian Bank v. Pappireddiar, as reported, the Court said whether land is agricultural is a matter of fact decided from the nature and use of the land.

Our reading: because the fast SARFAESI route may not be available on farmland, a bank holding farmland as security may have to go through slower recovery processes. That is a reason for caution in lending against it. We have not confirmed how any particular bank prices this.

State law limits who can buy and sell

Even if a bank would lend, the buyer must be allowed to buy. Several North Indian states restrict purchase of agricultural land to farmers or to residents, and some require permission. Our pages explain the position: state-wise agricultural land purchase rules, can a non-farmer buy agricultural land and domicile and farmer status rules by state.

A bank that finances a purchase which later fails a state law test risks the sale being challenged and its security failing. A lender will not lend if the buyer's eligibility is uncertain. Ceiling laws add another layer: see the land ceiling act explained.

What RBI priority sector rules actually say

The RBI Priority Sector Lending Directions, 2025 list under agriculture, at paragraph 9.1(A) item 6: "Loans to small and marginal farmers (SMFs) for purchase of land for agricultural purposes." The page we opened shows the Directions updated up to September 2026.

Two points follow. First, finance for buying agricultural land does exist as a priority-sector category, but only for small and marginal farmers. Second, the entry does not say that a bank must lend, only that such a loan can be counted. A salaried or business buyer without farmer status falls outside this category.

We also read the 2012 RBI Housing Finance circular. It permits bank finance for a plot alone with a declared intention to build, but it does not address loans to buy agricultural land. See plot loan vs home loan.

Valuation is difficult

A bank wants a number it can defend. For farmland, the price depends on soil, water, access, the next road or project and the buyer in the market. The circle rate, a state guideline value, may be far from the deal price. A bank valuer working from the circle rate may value the land below your price, so the loan is smaller than you expected. Read circle rate vs market rate and what drives agricultural land prices.

Resale is also thin. Fewer buyers can legally and practically buy a given plot of farmland, so a lender expects a long time to recover its money.

Title and record problems

Farmland records are often old, shared between heirs or recorded in local units. Many sale chains include partitions, gift deeds, powers of attorney or unregistered family arrangements. A lender's lawyer will want a clean chain and will refuse where the chain is broken. See the chain of title, partition (takseem) and the risks of GPA land sales.

For records you can check yourself, start with verify land ownership online before buying and check government acquisition notices.

What finance does exist

See Kisan Credit Card and agri loans, farmland as loan collateral and land loans in India.

What a buyer should do instead

Plan to fund farmland from your own money, and keep a reserve for stamp duty, registration and legal checks. If you must borrow, a loan against another asset you already own is usually simpler than a loan secured on the land you are buying. Do not accept a seller's verbal claim that "the bank will give a loan on this land". Ask for the lender's written sanction before you pay a token.

Be careful with brokers who promise easy finance on farmland or on a farmhouse plot. Check the seller, the land use and the layout first; see the before-booking checklist and land fraud in India.

What is unconfirmed

We could not open the SARFAESI Act text, so section 31(i) is quoted from a LiveLaw column. We could not open the full 2025 RBI Credit Facilities Directions, so we cannot say whether they restrict loans for buying agricultural land. We did not read any bank's product terms, so we cannot say which banks, if any, lend for farmland purchase. Please ask each lender in writing.

Frequently Asked Questions

Sources

• LiveLaw: Scope of agricultural lands as security interest vis-a-vis SARFAESI Act (secondary source quoting Section 31(i) and Supreme Court rulings)
• RBI Master Directions: Priority Sector Lending, Targets and Classification, Directions 2025 (page showing updates to September 2026)
• RBI Master Circular on Housing Finance, 2 July 2012 (older text; later Directions may have replaced it)