Kisan Credit Card: Interest Subvention on KCC Loans Approved, Only 4% Interest on Loans Upto Rs 3 lakh

On November 23, the Reserve Bank of India (RBI) released the interest rate for short-term loans up to Rs 3 lakh made using Kisan Credit Cards (KCC).

For agriculture and related enterprises including animal husbandry, dairy, fishery, beekeeping, etc., a short-term loan is made available through KCC. The central bank announced that the continuation of the Interest Subvention Scheme (ISS) with modifications for the fiscal years 2022–2023 and 2023–2024 had received government approval.

The following are the notification's key details:

Interest rate

Farmers would pay 7% interest on short-term loans through KCC up to a maximum of Rs 3 lakh. Lending institutions would receive a 1.5% interest subvention. Both the FY 2022–23 and the FY 2023–24 will use these rates.

3% discount!

Farmers who repaid the loan on time would receive an additional 3% interest subsidy. Therefore, such farmers' effective interest rate would only be 4%.

According to the RBI, "Those farmers repaying in time will receive an additional interest subvention of 3% per annum from the date of disbursement of the loan/s up to the actual date of repayment or up to the due date fixed by the banks for repayment of such loan/s, whichever is earlier, subject to a maximum period of one year from the date of disbursement."

The statement said, "This also suggests that the farmers repaying quickly as above will get short-term crop loans and/or short-term loans for related activities such animal husbandry, dairy, fisheries, beekeeping, etc. @ 4% per annum for the financial years 2022-23 and 2023-24."

The abovementioned benefit, however, would not apply to farmers who pay back their Agri loans after one year of doing so.

Interest subvention calculation

According to the RBI, subject to a maximum of a year, interest subvention will be calculated on the loan amount from the date of disbursement/withdrawal up to the date of the farmer's actual repayment of the loan or up to the loan's due date set by the banks, whichever comes first.

Loan for allied activities

The RBI noted that a maximum sub-limit of Rs 2 lakh per farmer will apply to those short-term crop loans and short-term loans for associated activities with an overall limit of Rs 3 lakh per year for farmers engaging only in activities linked to animal husbandry, dairy, fisheries, beekeeping, etc.

Avoiding distress sale

The RBI announced that the interest subvention interest under KCC will be available to small and marginal farmers for an additional period of up to six months following the harvest of the crop against negotiable warehouse receipts on the produce stored in warehouses accredited with Warehousing Development Regulatory Authority (WDRA) in an effort to discourage farmers from selling their produce in a distraught manner.

Relief from Natural calamity

According to the RBI, in order to provide farmers with assistance from severe natural calamities, the applicable rate of interest subvention will be made available to banks for the first three years/entire period (up to a maximum of five years) on the restructured loan amount.

"Furthermore, in all such circumstances, the benefit of an early repayment incentive at the rate of 3% annually will also be granted to the affected farmers. However, a High-Level Consulting (HLC) will decide whether to grant this benefit in times of extreme natural disasters based on the recommendations of the Inter-Ministerial Central Team (IMCT) and Sub Committee of National Executive Committee (SC-NEC),” it was stated.

Aadhaar Linkage

According to the RBI, the Aadhaar linking would still be necessary to apply for the abovementioned short-term loans in 2022-2023 and 2023-2024.