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 a 1.5% interest subsidy on short-term agricultural loans for all financial institutions.

For the fiscal years 2022-23 to 2024-25, lending institutions including Public Sector Banks, Private Sector Banks, Small Finance Banks, Regional Rural Banks, Cooperative Banks, and Computerized PACS directly ceded with commercial banks will receive an interest subsidy of 1.5 percent for lending short term agri-loans up to Rs 3 lakh to farmers.

This increase in Interest Subvention support necessitates additional budgetary provisions of Rs 34,856 crore under the scheme from 2022-23 to 2024-25.

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 increases in fund costs and will be encouraged to grant loans to farmers for short-term agricultural needs, allowing more farmers to benefit from agriculture credit. This will also result in the creation of jobs because short-term agri-loans are available for all activities such as animal husbandry, dairying, poultry, and fisheries.

Farmers will continue to be able to obtain short-term agricultural credit at a 4% annual interest rate as long as they repay the loan on time.

To provide farmers with hassle-free credit at a lower rate, the Government of India launched the Kisan Credit Card scheme, which allows farmers to purchase agricultural products and services on credit at any time. The government established the Interest Subvention Scheme (ISS) to ensure that farmers pay a low interest rate to banks. The scheme, now known as the Modified Interest Subvention Scheme (MISS), will provide farmers with short-term credit at subsidised interest rates.

Short-term agriculture loans of up to Rs 3 lakh are available under this scheme to farmers engaged in agriculture and other allied activities such as animal husbandry, dairying, poultry, fisheries, and so on, at a rate of 7% per annum.

Farmers receive an additional 3% subvention (Prompt Repayment Incentive – PRI) for timely and prompt repayment of loans. As a result, if a farmer repays his loan on time, he receives credit at 4% p.a. According to the release, the Centre fully funds this assistance, and it is also the DA&FW’s second largest scheme in terms of budget outlay and beneficiary coverage.

The government has issued over 3.13 crore new Kisan Credit Cards (KCC) to farmers, exceeding the target of 2.5 crore under the Aatmanirbhar Bharat campaign.