Union Cabinet approves Interest Subvention to banks on short-term crop loan to farmers

Jun 15, 2017 12:00 IST

The Union Cabinet, presided by Prime Minister Narendra Modi, on 14 June 2017 approved the Interest Subvention Scheme (ISS) for farmers for the year 2017-18.

The scheme will help farmers getting short term crop loan up to Rs. 3 lakh payable within one year at only 4 per cent per annum. The Government has allocated a sum of Rs. 20339 crore for the purpose.

Union Cabinet approves Interest Subvention to banks on short-term crop loan to farmers

Key highlights of the scheme

The Interest Subvention Scheme will continue for one year and it will be implemented by NABARD and RBI.

The interest subvention will be given to Public Sector Banks (PSBs), Private Sector Banks, Cooperative Banks and Regional Rural Banks (RRBs) on use of own funds. It will also be given to NABARD for refinance to RRBs and Cooperative Banks.

The objective of the scheme is to make available at ground level, agricultural credit for Short Term crop loans at an affordable rate to give a boost to agricultural productivity and production in the country.  

The Union Government will provide interest subvention of 5 per cent per annum to all prompt payee farmers for short term crop loan up to one year for loan upto Rs. 3 lakhs borrowed by them during the year 2017-18. Farmers will have to effectively pay only 4 per cent as interest.

In case farmers do not repay the short term crop loan in time, they would be eligible for interest subvention of 2 per cent as against 5 per cent.

In order to give relief to small and marginal farmers, who would have to borrow at 9 per cent for the post harvest storage of their produce, the Union Government has approved an interest subvention of 2 per cent i.e. an effective interest rate of 7 per cent for loans up to 6 months.

To provide relief to the farmers affected by natural calamities, the interest subvention of 2 per cent will be provided to Banks for the first year on the restructured amount.

In case farmers do not repay the short term crop loan in time, they would be eligible for interest subvention of 2 per cent as against available above.

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Impact of the scheme

The Union Cabinet’s approval of a sum of Rs.20339 crore to meet various obligations arising from interest subvention being provided to the farmers on short term crop loans meets an important input requirement of the farmers in India.  

This institutional credit will help in delinking the farmers from non-institutional sources of credit, where they are compelled to borrow at usurious rates of interest.  

As the crop insurance under Pradhan Mantri Fasal Bima Yojana (PMFBY) is linked to availing of crop loans, the farmers would stand to benefit from both farmer oriented initiatives of the Government, by accessing the crop loans.

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