Union Cabinet approves Interest Subvention on Short-Term Crop Loan to Farmers

The Union cabinet has approved the Interest Subvention Scheme (ISS) for farmers for the year 2017-18. The Government has allocated Rs. 20,339 crore for this scheme.

What is Interest Subvention?
• Interest subvention is a form of waiver of some percentage of interest on loan given to promote some particular industry and general public interest.
• This implies that with the subsidy in hand, the loan borrower has not to pay total interest on loan amount and the balance interest amount will be borne by the government.

Salient Highlights

The objective of the scheme is to make available agricultural credit for Short Term crop loans at an affordable rate.

The scheme is expected to boost agricultural productivity and production in the country.

Under this scheme, farmers will be given a short term crop loan up to Rs. 3 lakh payable within one year at an interest rate of 4% per annum.

The scheme will be continued for 1 year and will be implemented by NABARD and RBI.

The interest subvention will be provided to Public Sector Banks (PSBs), Private Sector Banks, Cooperative Banks and Regional Rural Banks (RRBs) and to NABARD for refinancing to RRBs and Cooperative Banks.

Interest subvention of 5% per annum will be provided to those farmers who pay the short term crop loan in time. Farmers will have to effectively pay only 4% as interest.

For farmers who do not pay crop loan in time the interest subvention of only 2% will be applicable as against 5% available above.

This institutional credit is expected to demotivate farmers from taking loans from non-institutional sources of credit at high rates of interest.

Background

Interest Subvention Scheme (ISS) has been running since 2006-07. Under this scheme, crop loans are offered at 7% rate of interest for loans up to Rs.3 lakh.

Further subvention of 3% will be provided to farmers who prompt repay the loans within a period of one year from the date of advance.

The scheme also offers post-harvest loans for storage in accredited warehouses against Negotiable Warehouse Receipts (NWRs) for a period of 6 months to check distress sale.

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