The Union Cabinet, at a meeting chaired by Prime Minister Narendra Modi here on Wednesday, decided to restore the interest subvention on short-term agriculture loans to 1.5% for all financial institutions, including cooperative banks.
The Centre said the increase in interest subvention support requires an additional budgetary provision of ₹34,856 crore for the period of 2022-23 to 2024-25.
Explaining the rationale behind the decision, Union Minister Anurag Thakur said as the Reserve Bank of India had recently increased the repo rate and an intervention was necessary to keep the interest rate on short term agriculture loan at 7%.
He said the Centre’s support to banks for the interest subvention scheme was stopped in May 2020 as the banks were able to provide short term agriculture loan at 7% by themselves.
“Thus, 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 Primary Agriculture Cooperatives directly ceded with commercial banks) for the financial year 2022-23 to 2024-25 for lending short-term agri-loans upto ₹3 lakh to the farmers,” a government release said.
Ensure sustainability of credit flow
The Centre 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, 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,” it said.
Farmers will continue to avail short term agriculture credit at interest rate of 4% per annum while repaying the loan in time, the Centre said.