Interest Subvention Scheme: Impact on the Agricultural Sector

Interest Subvention Scheme: Impact on the Agricultural Sector

Question: Financing is of crucial concern in the Indian agricultural sector. RBI has recently notified the Union Budget 2015-2016 Interest Subvention Scheme. Discuss how this will impact the agricultural sector.

- RBI has notified the Union Budget 2015-2016 Interest Subvention Scheme asking banks to provide interest concession of up to 2 percent on short term crop loans amounting to INR 3 lakh rupees

- Central bank has requested in the notification that interest subvention of 2 % per annum will be prevalent for public and private sector banks provided short term credit is lent to them at ground level at 7% annum to farmers

- Additional subvention of 3% will be there for farmers repaying the loan promptly from its date of disbursement during the fiscal 2015-2016

- This will provide relief to farmers impacted by natural calamities

- RBI has said the interest subvention of 2% will be available for first year on the restructured amount and attract normal interest rate from the second year onwards.

- This will benefit farmers who repay following one year of availing of such loans

- To prevent distress sale by farmers and encourage them to store the produce in warehouses against receipts, the advantages of interest subvention will be there for farmers who have Kisan Credit Card and are small and marginal farmers for a period of 6 months post harvest on the same rate as available to crop loan against negotiable warehouse receipt for placing produces in warehouses

Facts and Stats

- Government had proposed interest subvention scheme in the fiscal 2015-2016 for short term crop loans amounting to INR 3 lakh

- Following this, the Union Government extended the scheme to PSBs, private commercial banks, regional rural banks, NABARD and cooperative banks.