New Delhi: The Union Cabinet on Wednesday approved to restore Interest Subvention on short term agriculture loans to 1.5 per cent for all financial institutions.
Therefore, Interest Subvention of 1.5% will be provided to lending institutions/ banks for the financial year 2022-23 to 2024-25 for lending short term agri-loans upto Rs 3 lakh to the farmers, Union Minister Anurag Thakur said.
The decision has been made to ensure adequate credit flow in the farm sector, the Minister added.
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, a Cabinet statement said.
The Minister said the 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 and Cooperative Banks, ensuring adequate agriculture credit in rural economy.
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, the statement added.
Farmers will continue to avail short term agriculture credit at interest rate of 4% per annum while repaying the loan in time.
Ensuring hassle-free credit availability at cheaper rate to farmers has been one of the priorities of the government. Accordingly, 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 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. 3.00 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 annum.
An additional 3% 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. For enabling this facility to the farmers, government 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.