RBI details interest subvention scheme for banks on farm loans

The Government of India will provide interest subvention of 1.5 per cent per annum to public sector banks in respect of short-term production credit to farmers of up to Rs3 lakh during the year 2010-11, as announced in the budget for the 2010-11 financial year.

"In the last budget, I had provided an additional one per cent 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 one per cent to two per cent for 2010-11. Thus, the effective rate of interest for such farmers will now be five per cent per annum," the finance minister had said in his budget announcement.

This amount of subvention will be calculated on the crop loan amount from the date of its disbursement/drawal up to the date of actual repayment of the crop loan by the farmer or up to the due date of the loan fixed by the banks for the repayment of the loan, whichever is earlier, subject to a maximum period of one year, the Reserve Bank of India said in a notification issued today.

The interest subvention will be available to public sector banks on condition that they make available short-term production credit of up to Rs3 lakh at ground level at 7 per cent per annum, RBI said in its notification.

RBI has asked banks to immediately submit their estimates of short-term production credit to farmers of up to Rs3 lakh during the year 2010-11, to enable it to provide the government with an estimate of the likely amount of subvention.

RBI has asked banks to provide a realistic estimate of the likely amount of crop loans.