1.5% interest subvention on short-term agri loans of up to Rs 3 lakh: Govt

The Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday approved an interest subvention of 1.5 per cent per annum on short-term agriculture loan up to Rs 3 lakh to ensure "adequate credit flow in the agriculture sector".

"Thus, Interest Subvention of 1.5 per cent will be provided to lending institutions (Public Sector Banks, Private Sector Bank, Small Finance Banks, Regional Rural Banks, Cooperative Banks and Computerized PACS directly ceded with commercial banks) for the financial year 2022-23 to 2024-25 for lending short term agri-loans upto Rs 3 lakh to the farmers," said an official statement.

This increase in nterest subvention support requires additional budgetary provisions of Rs 34,856 crore for the period of 2022-23 to 2024-25 under the scheme.

According to the statement, the increase in the interest subvention will ensure the sustainability of credit flow in the agriculture sector as well as ensure financial health and viability of the lending institutions especially Regional Rural Banks & Cooperative Banks, ensuring adequate agriculture credit in the rural economy.

"Banks will be able to absorb the increase in cost of funds and will be encouraged to grant loans to farmers for short-term agriculture requirements and enable more farmers to get the benefit of agriculture credit. This will also lead to the generation of employment since short-term agri-loans are provided for all activities including animal husbandry, dairying, poultry, fisheries," said the statement.

Besides, farmers will continue to avail of short-term agriculture credit at an interest rate of 4 per cent per annum while repaying the loan in time.

Kisan Credit Card scheme was introduced for farmers, to empower them to purchase agriculture products and services on credit at any time. To ensure that the farmers have to pay a minimal interest rate to the bank, the Government of India introduced Interest Subvention Scheme (ISS), now renamed as Modified Interest Subvention Scheme (MISS), to provide short-term credit to farmers at subsidized interest rates.

Under this scheme, short-term agriculture loan upto Rs 3 lakh is available to farmers engaged in Agriculture and other allied activities including animal husbandry, dairying, poultry, fisheries etc. at the rate of 7 per cent per annum. An additional 3 per cent subvention (Prompt Repayment Incentive - PRI) is also given to the farmers for prompt and timely repayment of loans.

"Therefore, if a farmer repays his loan on time, he gets credit at the rate of 4 per cent p.a. For enabling this facility to the farmers, the Government of India provides Interest Subvention (IS) to the Financial Institutions offering this scheme. This support is 100 per cent funded by the Centre, it is also the second largest scheme of DA & FW as per budget outlay and coverage of beneficiaries," said the statement.