In order to provide short term crop loans upto ₹ 3.00 lakh to farmers at a concessional interest rate of 7 per cent per annum, the Government of India in the Department of Agriculture Cooperation and Farmers Welfare (DAC&FW) implements an interest subvention scheme which provides interest subvention of 2% per annum to lending institutions viz. Public Sector Banks (PSBs), Private Sector Commercial Banks (in respect of loans given by their rural and semi urban branches only), Regional Rural Banks (RRBs) and Cooperative Banks on use of their own resources.  Besides, additional 3% incentive is given to the farmers for prompt repayment of the loan, thereby reducing the effective rate of interest to 4%.

Under the Scheme, the Government provides interest subvention of 2% directly to the Cooperative Banks for such crop loans to make good the loss that the banks may incur on account of involvement of their own funds.

Further, National Bank for Agriculture & Rural Development (NABARD) provides short term refinance support to Cooperative Banks at the concessional interest rate of 4.5% through the Short Term Cooperative Rural Credit (Refinance) Fund (STCRC), made out of the shortfall in priority sector lending targets by scheduled commercial banks.

Due to the limited corpus, credit limit is sanctioned to the Cooperative Banks to the extent of 40% of Realistic Lending Programme and the average utilisation limit in previous years, as per the extant policy of NABARD. There is no proposal under consideration of the Union Government to increase the refinancing limit of NABARD.

This was stated by Shri Anurag Singh Thakur, Minister of State for Finance & Corporate Affairs in a written reply to a question in Rajya Sabha today.

Interest subvention scheme lowers effective crop loan cost via lender subvention and farmer prompt repayment incentive. The scheme reduces effective borrower cost by combining a lender subvention paid to lending institutions and a prompt repayment incentive for farmers; cooperative banks receive the lender subvention directly and access concessional refinance from a Short Term Cooperative Rural Credit Refinance Fund funded from priority sector shortfalls, with refinance sanctions capped at forty percent of Realistic Lending Programme and average prior utilisation due to limited corpus.