Cabinet Approves Interest Subvention of 1.5% on Short-Term Agriculture Loans

The Union Cabinet, chaired by PM Narendra Modi on Wednesday approved the restoration of interest subvention of 1.5% on short-term agriculture loans for all financial institutions for lending agri-loans up to Rs three lakh to farmers.

The interest subvention of 1.5% will be given to lending institutions that include private sector banks, public sector banks, small finance banks, regional rural banks, cooperative banks & computerized PACS for the financial year 2022-23 to 2024-25.

The rise in interest subvention support, according to the Centre, requires an additional budgetary provision of 34,856 crores for the years 2022–2023 to 2024–2025.

Union Minister Anurag Thakur provided an explanation of the decision's reasoning, stating that since the Reserve Bank of India had just raised the repo rate, an intervention was required to maintain the 7% interest rate on short-term agricultural loans.

He claimed that as soon as the banks were capable of offering short-term agriculture loans at 7% on their own, the Centre’s support for the interest subvention plan for banks was terminated.

Accordingly, lending institutions (public sector banks, private sector banks, small finance banks, regional rural banks, cooperative banks, and computerized primary agriculture cooperatives directly ceded with commercial banks) will receive interest subvention of 1.5% for lending short-term agri-loans up to 3 lakhs to farmers for the financial period 2022-23 to 2024-25, according to a government release.

Ensure Sustainability of Credit Flow

According to the Center, an increase in interest subsidy will maintain the feasibility and sustainability of credit flows in the agricultural sector as well as the financial health and viability of the lending institutions, ensuring adequate agriculture credit in rural economies.

Banks will be able to absorb the rise in funding costs and be encouraged to lend to farmers for short-term agricultural needs, allowing more farmers to benefit from agricultural credit. Since short-term agri-loans are available for all activities, including animal husbandry, dairying, poultry, and fisheries, it was stated that this would also lead to the creation of jobs.

Farmers will continue to be able to obtain short-term agricultural loans with an annual interest rate of 4% while paying on-time loan repayments, according to the Center.