The government on Friday decided to release Rs. 4,868 crore to public sector lenders for providing concessional loans to farmers.
The decision, taken at a Cabinet meeting, will help lenders provide farmers short-term crop loan at 7 per cent interest.
"The Union Cabinet today gave its approval for the release of Rs. 4,868 crore as interest subvention to Public Sector Banks (PSBs), Regional Rural Banks (RRBs), Cooperative Banks and NABARD for refinance to RRBs at concessional rates to reimburse the amount of interest subvention to ensure that the farmer, in general, should receive short-term crop loan at 7 per cent per annum this fiscal," the government said in a statement.
The lenders would have given loans to farmers at 9 per cent, had the subsidy of 2 per cent not been provided by the government.
The government has, since 2006-07, been subsidising short term crop loans so as to ensure the availability of funds to farmers.
This interest subvention scheme has been continued for 2010-11 for public sector banks, regional rural banks and cooperative banks.
In 2009-10, an additional subvention of one per cent was being provided to farmers who repaid on time.
This has been increased from one per cent in 2009-10 to two per cent in 2010-11. Thus, the effective rate of interest for such farmers will be five per cent per annum.
The banks have been consistently meeting the targets set for agriculture credit flow in the past few years. For 2010-11, the target for agricultural credit flow has been raised to Rs. 3,75,000 crore from Rs. 3,25,000 crore in 2009-10.
