Cabinet approves interest subvention of 1.5% on short term agriculture loan up to Rs 3 lakh for FY23 to FY25

The Union Cabinet, chaired by Prime Minister Narendra Modi has approved restoration of Interest Subvention on short term agriculture loans to 1.5 per cent for all financial institutions.

Interest Subvention of 1.5 per cent will be provided to lending institutions including 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 up to 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:

“Increase in Interest Subvention will ensure 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 rural economy,” a government release said.

Banks will be able to absorb 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 generation of employment since short term agri-loans are provided for all activities including Animal Husbandry, Dairying, Poultry, fisheries.

Farmers will continue to avail short term agriculture credit at interest rate of 4% per annum while repaying the loan in time.

To give hassle-free credit at cheaper rate to farmers, Government of India introduced Kisan Credit Card scheme for farmers to help them in purchasing agriculture products and services on credit at any time. The government introduced Interest Subvention Scheme (ISS) to ensure that the farmers pay a minimal interest rate to the bank. Now renamed as Modified Interest Subvention Scheme (MISS), the scheme will provide short term credit to farmers at subsidised 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 p.a.

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% p.a. This support is 100 per cent funded by the Centre, the release said claiming that it is also the second largest scheme of DA&FW as per budget outlay and coverage of beneficiaries.

The government has issued over 3.13 Crore farmers have been issued new Kisan Credit Card (KCC) against the target of 2.5 crore under the Aatmanirbhar Bharat campaign.