Interest subvention for farmers

Farmers body Bharat Krishak Samaj (BKS) has suggested the government should do away with interest subvention scheme on crop loan and take corrective measures to provide institutional credit to small farmers. Currently, farmers can avail of loans up to Rs 3 lakh at 7 per cent interest rate. The government provides interest subvention of 3 per cent on timely repayment of loan.

Crop Loans are also called short term loans for “Seasonal Agricultural Operations.” The seasonal agricultural operations connote such activities as are undertaken in the process of raising various crops and are seasonally recurring in nature. The activities include, among others, ploughing and preparing land for sowing, weeding, transplantation where necessary, acquiring and applying inputs such as seeds, fertilizers, insecticides etc.

and labour for all operations in the field for raising & harvesting the crops. Thus, the credit required to meet the current expenditure for raising the crops on land till the crops are harvested is construed as production or short term credit for seasonal agricultural operations. Crop loans are generally disbursed by the banks through the mode of Kisan Credit Card (KCC).

The government in August announced the launch of interest subvention schemes. Disclosing this, the Reserve Bank of India stated in a notification that the farmers can obtain such rate if they repay existing loans promptly. This also implies that the farmers paying promptly would get short term crop loans @4% per annum during the year 2015-16. This benefit would not accrue to those farmers who repay after one year of availing of such loans, according to the central bank.
The scheme offers incentive for prompt timely repayment of loans by the farmers.

Additional interest subvention at 3% will be provided to such farmers. However, prompt repayments must have been made right date of disbursement of crop loans till actual date of repayment or due date fixed by the banks, whichever is earlier, subject to a maximum period of one year from the date of disbursement, RBI said.

The benefit of interest subvention will be available to small and marginal farmers having Kisan Credit Card for a further period of up to six months post-harvest on the same rate as available to crop loan. The scheme is intended to protect farmers from high interest rates as well as reduce lending risk for banks, given the risky nature of the loans.