Cabinet approves interest subvention on short-term crop loan to farmers

Approval enables bank to provide short-term crop loans up to Rs 3 lakh to farmers at 7% per annum in 2014-15

The Union Cabinet chaired by the Prime Minister, gave its approval to the following:

* To continue interest subvention to Public Sector Banks (PSBs), Private Sector Banks, Regional Rural Banks (RRBs), Cooperatives Banks and National Bank for Agriculture and Rural Development (NABARD) to enable them to provide short-term crop loans up to Rs 3 lakh to farmers at 7% per annum during the year 2014-15.

* To provide additional interest subvention of 3% per annum to those farmers who repay on time, that is within one-year of disbursement of their short-term crop loans taken during the year 2014-15.

* To permit the release of Rs 18583 crore as interest subvention for 2014-15, of which Rs 4399 crore subvention to NABARD for refinance to Cooperatives Banks and RRBs and Rs 14184 crore to Public Sector Banks, Private Sector Banks, RRBs and Cooperative Banks for subvention on their own funds.

* To provide interest subvention to small and marginal farmers having Kisan Credit Cards for loan against negotiable warehouse receipts for post harvest at 7% per annum.

* To permit the release of Rs 321 crore as interest subvention to small and marginal farmers having Kisan Credit Cards against negotiable warehouse receipts, for post-harvest.

* To provide relief to farmers affected by natural calamities, the interest subvention of 2% will continue to be available to banks for the first year on the restructured amount. Such restructured loans may attract normal rate of interest from the second year onwards as per the policy laid down by the RBI.

The Government of India has since 2006-07 been subsidizing short-term crop loans to farmers in order to ensure the availability of crop loans to farmers for loans upto Rs 3 lakh at 7% per annum. This interest subvention scheme has been further continued for 2014-15 for PSBs, Private Sector Banks, RRBs and Cooperative Banks. In the year 2009-10, an additional subvention of 1% was provided to farmers who repay their loans on time. This has been increased from 2% in 2010-11 to 3% in 2011-12, 2012-13 and 2013-14. Thus, the effective rate of interest for such prompt-payee farmers is 4%.

Banks have been consistently meeting the target set for agriculture credit flow in the past years. For the year 2014-15, the target for agricultural credit flow has been raised to Rs 800000 crore from Rs 700000 crore in the year 2013-14.

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