Interest waived on crop loans from co-op banks for November-December

The union cabinet on Friday approved interest waiver for the two months of November and December, 2016 for farmers accessing short-term crop loans from cooperative banks and providing interest subvention to National Bank for Agricultural and Rural Development (NABARD) on additional refinance by NABARD to cooperative banks

The cabinet chaired by Prime Minister Narendra Modi has given ex-post facto approval for interest waiver for the two months of November and December, 2016 for farmers accessing short term crop loans from cooperative banks. The decision also provides for interest subvention to National Bank for Agricultural and Rural Development (NABARD) on additional refinance by NABARD to cooperative banks.

Farmers in the whole of India availing short-term crop loans, from cooperative banks will be benefited.

The decision intends to ensure availability of resources with cooperative banks help farmers in easily accessing crop loans from cooperative banks to overcome the difficulties in view of the reduction in availability of cash for carrying out Rabi operations.

Additional resources are to be provided to cooperative banks through NABARD for refinance to the cooperative banks on account of interest waiver of two months for November and December 2016.

This will be extended by cooperative banks to the farmers in the current financial year 2016-17. An additional financial liability of Rs1,060.50 crore will be required for this purpose. A sum of Rs15,000 crore allocated during 2016-17 to implement the Interest Subvention Scheme (ISS) has already been utilised.

The government of India has, since 2006-07, been implementing the Interest Subvention Scheme under which public sector banks, regional rural banks and cooperative banks make short-term crop loans up to Rs3 lakh available to farmers at an interest rate of 7 per cent per annum. Farmers are provided with 3 per cent interest subvention for short-term crop loan of up to Rs3 lakh on prompt repayment of the loan. Thus, farmers have to effectively pay only 4 per cent as interest for the said crop loan.

The interest waiver has been provided on account of the cancellation of legal tender character of old Rs500 and Rs1,000 notes and the resulting difficulty faced by the farmers in encasing the cheques received against sale proceeds of their Kharif produce in the mandis; and also their constraints with inadequacy of cash for carrying out Rabi operations and servicing the interest of the short term crop loans, especially in view of the restrictions imposed on cooperative banks.

The provision of additional financial resource of Rs1,060.50 crore is intended to meet the cost of interest waiver for 2 months (November and December 2016) for crop loan disbursed by cooperative banks between 1 April 2016 and 30 September 2016 to farmers and for providing interest subvention and administrative cost to NABARD on short term borrowing of about Rs20,000 crore for on-lending to cooperatives banks in the current financial year.