Jun 20, 2024

Good news for farmers: Cabinet approves interest subsidy of 1.5 percent on short-term agricultural credit up to Rs 3 lakh

The Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday approved a subvention of interest of 1.5 percent per year on agricultural loans for short-term of up to 3 lakh to guarantee “adequate credit flow in the agriculture sector”.

“Thus, Interest Subvention of 1.5 percent 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 upto Rs 3 lakh to the farmers,” according to an official announcement.

The increase in Support for Interest Subvention is contingent on additional budgetary allocations of Rs 34.856 crore for 2022-23 until 2024-25 in the scheme.

In the report, an increased amount of the interest subvention will help ensure the viability of credit flow in the agricultural sector and also ensure the stability and financial health of lending institutions, in particular, Regional Rural Banks & Cooperative Banks and ensure adequate agriculture credit to an economy that is rural.

“Banks will be able to absorb the 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 the generation of employment since short-term agri-loans are provided for all activities including animal husbandry, dairying, poultry, fisheries etc.”

Additionally, farmers will be able to be eligible for short-term agricultural credit at a rate of 4 percent per year, while they pay back the loan on time.

Kisan Credit Card scheme was designed for farmers, in order to enable them to buy agricultural products and services with credit anytime. To ensure that farmers are required to pay an affordable interest rate to the bank it was the Government of India introduced Interest Subvention Scheme (ISS), which is now known as Modified Interest Subvention Scheme (MISS) which provides short-term loans to farmers at subtracted interest rates.

In this scheme, a short-term loans for agriculture up to Rs 3 lakh is offered to farmers involved in Agriculture as well as other related activities like animal husbandry, poultry, dairying, fisheries, and more. with a rate of 7 percent per year. Additional 3 percent subvention (Prompt Repayment Incentive, (PRI) is also offered to farmers in order to ensure timely and prompt payment of loans.

“Therefore, if a farmer repays his loan on time, he gets credit at the rate of 4 per cent p.a. For enabling this facility to the farmers, the Government of India provides Interest Subvention (IS) to the Financial Institutions offering this scheme. This support is 100 percent funded by the Centre, it is also the second largest scheme of DA&FW as per budget outlay and coverage of beneficiaries,” declared the statement.


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