What changed
The interest subvention for short-term crop loans was increased from 2% to 3% per annum for the year 2008-09. This applies to loans up to Rs 3,00,000 provided to farmers by public sector banks, rural co-operative banks, and Regional Rural Banks. The subvention is calculated from disbursement date until repayment or the date the loan becomes overdue, whichever is earlier.
What it means for you
Banks can now claim a higher subvention of 3% on their own funds used for short-term crop loans, improving their net interest margin on these advances. However, they must ensure farmers get credit at 7% p.a., which may compress lending spreads if funding costs are high. This move aims to ease farmer credit burden while incentivizing banks to lend more.
What you must do
- Update internal systems to apply 3% subvention for all eligible short-term crop loans up to Rs 3 lakh disbursed in 2008-09.
- Ensure lending rate to farmers is capped at 7% p.a. to qualify for the subvention.
- Calculate subvention from disbursement date to repayment or overdue date, whichever is earlier.
- Coordinate with NABARD for RRBs and co-operatives as separate circular applies to them.
Who it affects
Public sector banks, Rural co-operative banks, Regional Rural Banks, Farmers availing short-term crop loans up to Rs 3 lakh
What is the eligibility period for this subvention?
The subvention applies to short-term crop loans disbursed during the financial year 2008-09, and is calculated from the date of disbursement until repayment or the date the loan becomes overdue, whichever is earlier.
Does this subvention apply to loans above Rs 3 lakh?
No, the subvention is available only for short-term production credit up to Rs 3,00,000 per farmer. Loans above this limit are not covered.
What is the condition for banks to claim this subvention?
Banks must provide short-term credit to farmers at an interest rate of 7% per annum at the ground level. Only then are they eligible for the 3% subvention on their own funds used.