Union Cabinet, chaired by Prime Minister Narendra Modi has approved to restore interest subvention on short-term agriculture loans to 1.5 per cent for all financial institutions. Thus, the interest subvention of 1.5 per cent will be provided to lending institutions such as public sector banks, private sector banks, small finance banks, regional rural banks, cooperative banks and computerised 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.
This increase in interest subvention support requires additional budgetary provisions of Rs 34,856 crore for the period of 2022-23 to 2024-25 under the scheme.
Benefits
An increase in 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 (RRBs) and cooperative banks, ensuring adequate agriculture credit in the rural economy.
Banks will be able to absorb increase in the 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 agricultural credit. This will also lead to generation of employment since short-term agri-loans are provided for all activities including animal husbandry, dairying, poultry and fisheries.
Farmers will continue to avail of short-term agricultural credit at an interest rate of 4 per cent per annum while repaying the loan in time.
Genesis
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 subsidised interest rates.
Under this scheme, short-term agricultural loan upto Rs. 3 lakh is available to farmers engaged in agriculture and other allied activities including animal husbandry, dairying, poultry and fisheries 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 per annum. For enabling this facility for 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 the Department of Agriculture and Farmers’ Welfare (DA&FW) as per budget outlay and coverage of beneficiaries.
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Recently, under the Aatmanirbhar Bharat campaign, over 3.13 crore farmers have been issued new Kisan Credit Cards (KCC) against the target of 2.5 crores. Special initiatives such as the KCC Saturation Drive for farmers enrolled under PM-KISAN scheme have also simplified the process and documentation involved in getting the KCC sanctioned.
Keeping in view the changing economic scenario, especially the increase in the interest rate and lending rates for the financial institutions especially cooperative banks and regional rural banks, the Government has reviewed the rate of interest subvention provided to these financial institutions. It is expected that this would ensure adequate credit flow in the agriculture sector to the farmer as well as ensure the financial health of lending institutions.
To address this challenge, the Government of India has decided to restore interest subvention on short-term agriculture loans to 1.5 per cent for all financial institutions.
