The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi,  gave its approval to the following:

1. To continue interest subvention to Public Sector Banks (PSBs), Private Sector Banks, Regional Rural Banks (RRBs), Cooperatives Banks and National Bank for Agriculture and Rural Development (NABARD) to enable them to provide short-term crop loans up to ₹ 3 lakh to farmers at 7 per annum during the year 2014-15.

2. To provide additional interest subvention of 3 percent per annum to those farmers who repay on time, that is within one year of disbursement of their short-term crop loans taken during the year 2014-15.

3. To permit the release of ₹ 18,583 crore as interest subvention for 2014-15 of which ₹ 4399 crore subvention to NABARD for refinance to Cooperatives Banks and RRBs and ₹ 14,184 crore to Public Sector Banks, Private Sector Banks, RRBs and Cooperative Banks for subvention on their own funds.

4. To provide interest subvention to small and marginal farmers having Kisan Credit Cards for loan against negotiable warehouse receipts for post harvest at 7 percent per annum. interest for a period of six months that is at the same rates as applicable for crop loans as given in the para (1) above.

5. To permit the release of ₹ 321 crore as interest subvention to small and marginal farmers having Kisan Credit Cards against negotiable warehouse receipts, for post-harvest.

6. To provide relief to farmers affected by natural calamities, the interest subvention of two percent will continue to be available to banks for the first year on the restructured amount. Such restructured loans may attract normal rate of interest from the second year onwards as per the policy laid down by the RBI.

Background

The Government of India has since 2006-07 been subsidizing short-term crop loans to farmers in order to ensure the availability of crop loans to farmers for loans upto Rs.three lakh at seven percent per annum. This interest subvention scheme has been further continued for 2014-15 for PSBs, Private Sector Banks, RRBs and Cooperative Banks. In the year 2009-10, an additional subvention of 1 percent was provided to farmers who repay their loans on time. This has been increased from 2 percent in 2010-11 to 3 percent in 2011-12, 2012-13 and 2013-14. Thus, the effective rate of interest for such prompt-payee farmers is four percent.

Banks have been consistently meeting the target set for agriculture credit flow in the past years. For the year 2014-15, the target for agricultural credit flow has been raised to ₹ 8,00,000 crore from ₹ 7,00,000 crore in the year 2013-14.

Interest subvention for short term crop loans retained, with added prompt repayment incentive reducing effective borrower rate. Approval continues the interest subvention for short-term crop loans at seven percent per annum for the specified loan limit across banks and NABARD, with an additional three percent subvention for borrowers who repay within one year, funded through authorised allocations including amounts to NABARD for refinance and allocations to banks for their own fund subvention.