NEW DELHI: The Union Cabinet on Wednesday, August 17, cleared a proposal to offer interest subvention of 1.5 percent per year to banks for providing short-term agriculture loan to an extent of Rs 3 lakh.
The interest subvention will be given for a period of 2 financial years (2022-23 to 2024-25). This increase in interest subvention will require an additional budgetary provision of Rs 34,856 crore.
Anurag Thakur, Union Minister for Information and Broadcasting, told the media after the cabinet meeting that the move is intended to give financial support to banks that provide short-term loans to farmers under the modified interest subvention scheme while taking into account the fact that repo rates have increased recently.
The decision will also make certain that the short-term credit facility for farmers continues and they do not have to pay the higher interest rate on loans.
The increase in interest subvention will also ensure the viability of the lending institutions, particularly regional rural banks and cooperative banks, and the sustainability of credit flow in the agricultural sector, ensuring adequate agriculture credit in the rural economy.
Farmers receive loans with a 7% interest rate under the interest subvention programme. Farmers that repay their loans on time only have to pay 4% interest since they receive a 3% interest subsidy.