The Union Cabinet on 17th August 2022, has approved to restore Interest Subvention on short term agriculture loans to 1.5% for all financial institutions. 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 PACS directly ceded with commercial banks) for the financial year 2022-23 to 2024-25 for lending short term agri-loans upto Rs 3 lakh to the farmers.
To ensure that the farmers have to pay a minimal interest rate to the bank, the Government of India 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 upto 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 to the farmers, Government of India provides Interest Subvention (IS) to the Financial Institutions offering this scheme.
Keeping in view the changing economic scenario, especially 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 and has decided to restore Interest Subvention on short term agriculture loans to 1.5% for all financial institutions.
An 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.
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.
