Interest subvention on Short Term Agriculture Loan

On July 17, 2022, Union Cabinet approved to restore the interest subvention on short-term agricultural loans, in order to boost the farm sector. Approval will be applicable to all financial institutions that will ensure stable availability of credit for firm sector and extend support to lending institutions in the midst of increasing interest rates.

Key Facts:

  • An interest subvention of 1.5% was approved on short-term farm loans up to Rs 3 lakh. This amount will be given to lending institutions for FY 2022-23 to 2024-25.
  • The 1.5% interest subvention for agriculture or farm sector aims to ensure adequate agriculture credit in rural economy.
  • It will also ensure financial health and viability of lending institutions across regional rural banks and cooperative banks.
  • This measure would require an additional budgetary provision of RS 34,856 crore FY 2023-FY 2025 under the scheme.

Government reviewed the rate of interest subvention due to changing economic scenario like increasing interest rate and lending rates for financial institutions. Restoration of interest subvention will ensure adequate credit flow in firm sector for farmer. This move will allow banks to absorb an increase in funds cost. Banks would also be encouraged to grant loans to farmers for short term agriculture needs.

Interest Subvention Scheme:

Interest Subvention Scheme was launched by government to ensure that farmers pay a minimum interest rate to the bank. This scheme has been rechristened as Modified Interest Subvention Scheme (MISS), under which short term credit loan up to Rs 3 lakh is provided to farmers from agriculture and other allied activities at subsidized interest rates.

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