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3% Interest Subvention on Short-Term Crop Loans for 2008-09

Current · Source: Reserve Bank of India · RBI/2008-09/305 · issued 03 Dec 2008 · ~2 min read
Quick answerGovernment raised interest subvention from 2% to 3% for short-term crop loans up to Rs 3 lakh for 2008-09. PSBs, rural co-ops, and RRBs get this on own funds used, provided they lend at 7% p.a. to farmers.
The rule, in the simplest words
How it plays out — a real example

An agri & priority-sector lending officer in Indore, Priya, processes a short-term crop loan of Rs 2.5 lakh for a farmer. She sets the interest rate at 7% p.a. to qualify for the 3% subvention. When the farmer repays on time, Priya's bank claims the subvention from the government, boosting their net interest margin on that loan.

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

Who it affects

Public sector banks, Rural co-operative banks, Regional Rural Banks, Farmers availing short-term crop loans up to Rs 3 lakh

❓ Common questions

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.

📜 Read the original circular — full text as issued by RBI
RBI/2008-09/305 RPCD.No.PLFS.BC. 72 /05.04.02/2008-09 December 3, 2008 The Chairman/Managing Director All Public Sector Banks Dear Sir, 3 per cent interest subvention scheme for short-term crop loans in 2008-09 Please refer to our circular RPCD.No.PLFS.BC. 11/05.04.02/2008-09 dated July 14, 2008 regarding continuation of 2 per cent interest subvention scheme for short-term crop loans in 2008-09. 2. We have now been informed by Government of India, Ministry of Finance, Department of Financial Services that the Government has approved interest subvention of 3% (instead of 2% ) for the year 2008-09, as under: The subvention of 3% per annum is available to public sector banks(PSBs), rural co-operative banks and Regional Rural Banks(RRBs) on their own funds used for short term credit up to Rs 3,00,000/- provided to farmers. 3. Accordingly, public sector banks would be eligible for interest subvention of 3% in respect of short-term production credit up to Rs.3 lakh provided to farmers for the year 2008-09. The amount of subvention is to be calculated on the amount of the crop loan disbursed from the date of disbursement/drawal up to the date of repayment or up to the date beyond which the outstanding loan becomes overdue, whichever is earlier.  This subvention is available to the Banks on the condition that they make available short-term credit at the ground level at 7% p.a. 4. All other conditions of our circular mentioned above remain unchanged. 5. In case of RRBs and co-operatives, a separate circular has been issued by NABARD. Yours faithfully, (A.K.Pandey) General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/305 · issued 03 Dec 2008. The plain-English explanation above is BankPulse’s own independent summary.
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Who does what — compliance checklist
💻 IT / Systems
  • Update internal systems to apply 3% subvention for all eligible short-term crop loans up to Rs 3 lakh disbursed in 2008-09.
📜 Compliance
  • 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.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template

Example: if you are an IT/Systems lead at a bank this circular applies to (Public sector banks, Rural co-operative banks, Regional Rural Banks, Farmers availing short-term crop loans up to Rs 3 lakh), your first concrete step on “3% Interest Subvention on Short-Term Crop Loans for 2008-09” is: “Update internal systems to apply 3% subvention for all eligible short-term crop loans up to Rs 3 lakh disbursed in 2008-09.” (RBI issued this 03 Dec 2008).

  1. Circular: RBI/2008-09/305 -- 3% Interest Subvention on Short-Term Crop Loans for 2008-09
  2. Issued: 03 Dec 2008
  3. Action required: Update internal systems to apply 3% subvention for all eligible short-term crop loans up to Rs 3 lakh disbursed in 2008-09.
  4. Action required: Ensure lending rate to farmers is capped at 7% p.a. to qualify for the subvention.
  5. Action required: Calculate subvention from disbursement date to repayment or overdue date, whichever is earlier.
  6. Action required: Coordinate with NABARD for RRBs and co-operatives as separate circular applies to them.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4679&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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