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  • Cabinet clears Rs 4,868 cr for banks towards interest subsidy

    Published on July 31, 2010

    The government has decided to release Rs 4,868 crore to PSU banks for providing short-term crop loans to farmers at a concession of up to 4 percent in lending rates.

    The decision, taken at a Cabinet meeting, is aimed at bringing more farmers under the net of institutional credit and raising farm productivity.

    The banks provide farmers loan up to Rs 3 lakh at 5-7 percent interest per annum and the government gives 2-4 percent subsidy to these banks and NABARD.

    The lenders would have given loans to farmers at 9 percent, had the subsidy of 2-4 percent not been provided by the government.

    “The Cabinet today gave its approval for the release of Rs 4,868 crore as interest subvention to public sector banks, regional rural banks (RRBs), cooperative banks and NABARD for refinance to RRBs at concessional rates,” an official statement said on Friday.

    Short-term crop loans mean credit to farmers to buy seeds etc at the beginning of the cropping cycle and is usually payable within a year.

    Those farmers who pay back loans within 12 month are eligible for four percent subsidy, while others get two percent subsidy.

    With large number of farmers still under the trap of money lenders, the concessional loan scheme will go a long way in bringing them to institutional credit and improve farm productivity.

    The government has, since 2006-07, been subsidising short term crop loans so as to ensure the availability of funds to farmers.

    While farmers have been getting loans at a concession of two percent in lending rates, those repaying their bank debts started getting one percent additional discount last fiscal.

    This year, the amount of concession has been increased to four percent by the government for loans to these prompt paying farmers.

    In his speech on Budget for this fiscal, Finance Minister Pranab Mukherjee had said, “In the last budget, I had provided an additional one per cent interest subvention as an incentive to those farmers who repay their short-term crop loans as per schedule. I propose to raise this subvention for timely repayment of crop loans from one per cent to two per cent for 2010-11.”

    Thus, the effective rate of interest for farmers repaying their loans on time now stands at five percent 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.