Cabinet clears Rs 5,000 cr for banks towards interest subsidy

Written by fe Bureau | New Delhi | Updated: Aug 1 2010, 05:05am hrs
The government on Friday decided to release close to Rs 5,000 crore to financial institutions to facilitate subsidised short-term loans to farmers. Farmers will be able to get farm loans at interest rate as low as 5% once the money is released.

The government has been subsidising short-term farm loans since 2006-07 and had also waived off outstanding loans of more than Rs 60,000 crore in 2008-09.

As per the decision taken by the Cabinet on Friday, Rs 4,868 crore will be released as interest subvention to public sector banks, regional rural banks (RRBs), cooperative banks and Nabard.

The money is meant for refinance to RRBs at concessional rates to reimburse the amount of interest subvention to ensure that the farmer, in general, should receive short-term crop loan at 7% per annum with an upper limit of Rs 3 lakh on the principal amount during 2010-11 this fiscal, the government statement said. Prompt re-payers will be able to get loans at 5%, it added.

The decision follows finance minister Pranab Mukherjees announcement in the Budget for 2010-11. In the last Budget, I had provided an additional 1% interest subvention as an incentive to those farmers who repay their short-term crop loans as per schedule. I propose to raise this subvention for timely repayment of crop loans from 1% to 2% for 2010-11. Thus, the effective rate of interest for such farmers will now be 5% per annum, he had said.

The banks have been consistently meeting the targets set for agriculture credit flow in the past few years, leading to the finance minister setting a higher target for agricultural loans at Rs 3,75,000 crore in 2010-11 against Rs 3,25,000 crore in 2009-10. Last year, loans were given to 4.82 crore farmers.