New Delhi: The Union Cabinet today approved restoring the interest subvention on short-term agriculture loans to 1.5% for all financial institutions in a bid to ensure the sustainability of credit flow in the agriculture sector. The move is also expected to ensure the financial health and viability of the lending institutions especially Regional Rural Banks and Cooperative Banks, ensuring adequate agriculture credit in the rural economy.
Thus, an interest subvention of 1.5% 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 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,” a Cabinet note stated.
Following the increase in interest subvention, Banks will be able to absorb the 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 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, and fisheries.
Farmers will continue to avail of short-term agriculture credit at an interest rate of 4% per annum while repaying the loan in time.
It may be mentioned that 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 up to 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% p.a. 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 for the farmers, the Government provides Interest Subvention (IS) to the Financial Institutions offering this scheme. This support is 100% 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.
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 expects that this will 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 proactively decided to restore Interest Subvention on short-term agriculture loans to 1.5% for all financial institutions.
– global bihari bureau