It will ensure sustainability of credit flow in the agriculture sector as well as ensure financial health and viability of the lending institutions.
The Union Cabinet, chaired by the Prime Minister, Shri Narendra Modi has approved to restore Interest Subvention on short term agriculture loans to 1.5 per cent for all financial institutions. Thus, Interest Subvention of 1.5 per cent 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 up to Rs 3 lakh to the farmers.
This increase in Interest Subvention support requires additional budgetary provisions of Rs 34,856 crore for the period of 2022-23 to 2024-25 under the scheme.
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.
Farmers will continue to avail short term agriculture credit at interest rate of 4 per cent per annum while repaying the loan in time.
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. It is expected that this will ensure adequate credit flow in agriculture sector to the farmer as well as ensure financial health of lending institutions.
To address this challenge, Government of India has proactively decided to restore Interest Subvention on short term agriculture loans to 1.5 per cent for all financial institutions.