The Union Cabinet, chaired by Prime Minister Narendra Modi, has agreed to reinstate the 1.5% interest subsidy on short-term agricultural loans for all financial institutions. Thus, for the fiscal years 2022-23 to 2024-25, lending institutions (public sector banks, private sector banks, small finance banks, regional rural banks, cooperative banks, and computerised PACS directly ceded with commercial banks) will receive an interest subsidy of 1.5% for lending short term agri-loans up to Rs 3 lakh to farmers.
This increase in Interest Subvention support necessitates additional budgetary provisions of Rs 34,856 crore under the scheme from 2022-23 to 2024-25.
Benefits of Interest Subvention:
Increased interest subsidies will ensure the sustainability of credit flows in the agricultural sector, as well as the financial health and viability of lending institutions, particularly Regional Rural Banks and Cooperative Banks, ensuring adequate agriculture credit in rural economies.
Banks will be able to absorb increases in fund costs and will be encouraged to grant loans to farmers for short-term agricultural needs, allowing more farmers to benefit from agriculture credit. This will also result in the creation of jobs because short-term agri-loans are available for all activities such as animal husbandry, dairying, poultry, and fisheries. Farmers will continue to be able to obtain short-term agricultural credit at a 4% annual interest rate as long as they repay the loan on time.
The Government of India's top priority has been to ensure that farmers have easy access to credit at lower interest rates. As a result, the Kisan Credit Card scheme was launched for farmers, allowing them to purchase agricultural products and services on credit at any time. The Government of India introduced the Interest Subvention Scheme (ISS), now renamed the Modified Interest Subvention Scheme (MISS), to provide farmers with short-term credit at subsidized interest rates in order to ensure that farmers have to pay a minimal interest rate to the bank.
Short-term agriculture loans of up to Rs. 3.00 lakh are available under this scheme to farmers engaged in agriculture and other allied activities such as animal husbandry, dairying, poultry, fisheries, and so on, at a rate of 7% p.a. Farmers also receive an additional 3% subvention (Prompt Repayment Incentive - PRI) for timely loan repayment. As a result, if a farmer repays his loan on time, he receives credit at 4% p.a. The Government of India provides Interest Subvention (IS) to Financial Institutions offering this scheme in order to make this facility available to farmers. This assistance is fully funded by the Centre; it is also the DA&FW's second largest scheme in terms of budget outlay and beneficiary coverage.
Recently, over 3.13 crore farmers were issued new Kisan Credit Cards (KCC) under the Aatmanirbhar Bharat campaign, exceeding the target of 2.5 crore. Special initiatives, such as the KCC Saturation Drive for farmers enrolled in the PM-KISAN scheme, have also streamlined the process and documentation required to obtain KCC approval.
With the changing economic scenario in mind, particularly the increase in interest rates and lending rates for financial institutions, particularly cooperative banks and regional rural banks, the government has reviewed the rate of interest subvention provided to these financial institutions.
This is expected to ensure adequate credit flow to farmers in the agricultural sector as well as the financial health of lending institutions. To address this issue, the Government of India has taken the proactive step of restoring the interest subsidy on short-term agricultural loans to 1.5% for all financial institutions.
