What changed
The Government of India directed RBI to implement the Interest Subvention Scheme for 2013-14, providing 2% p.a. subvention to PSBs and Private Sector Scheduled Commercial Banks (in respect of loans given by their rural and semi-urban branches) on their own funds used for short-term crop loans up to Rs.3 lakh per farmer, provided banks lend at 7% p.a. to farmers. Additionally, prompt-paying farmers receive an extra 3% subvention, making their effective rate 4% p.a., but this benefit is lost if repayment exceeds one year. The scheme also extends post-harvest benefits for small and marginal farmers with Kisan Credit Cards for up to six months post harvest on the same rate as available to crop loan against negotiable warehouse receipt.
What it means for you
Banks must ensure short-term crop loans up to Rs.3 lakh are disbursed at 7% p.a. to farmers to qualify for the 2% subvention, which covers interest differential. The additional 3% subvention for prompt payers incentivizes timely repayment, reducing credit risk for lenders. Banks need to segregate KCC loans for cultivation and post-harvest expenses only, as other categories are excluded from subvention claims. Claims require strict half-yearly submission with statutory auditor certification, impacting operational processes.
What you must do
- Disburse short-term crop loans up to Rs.3 lakh at 7% p.a. to farmers to claim 2% interest subvention.
- Identify and offer prompt-paying farmers the additional 3% subvention, ensuring loans are repaid within one year.
- Segregate KCC loans for cultivation and post-harvest expenses only when computing subvention claims.
- Submit half-yearly claims for 2% subvention as at September 30, 2013 and March 31, 2014, with statutory auditor certificate for the year-end claim.
- Submit one-time consolidated claim for 3% additional subvention latest by April 30, 2015, duly audited.
Who it affects
All Public Sector Banks, Private Sector Scheduled Commercial Banks (in respect of loans given by their rural and semi-urban branches), Farmers availing short-term crop loans up to Rs.3 lakh, Small and marginal farmers with Kisan Credit Cards
What is the maximum loan amount eligible for interest subvention under this scheme?
Short-term crop loans up to Rs.3,00,000 per farmer are eligible for the 2% interest subvention, provided banks lend at 7% p.a.
How does the additional 3% subvention for prompt-paying farmers work?
Farmers who repay their crop loan within one year from disbursement or by the due date (whichever is earlier) get an additional 3% subvention, reducing their effective interest rate to 4% p.a. This benefit is lost if repayment exceeds one year.
Which KCC loan categories are covered under the Interest Subvention Scheme?
Only loans for short-term credit for crop cultivation and post-harvest expenses are covered. Other categories like consumption, marketing, or investment credit are excluded.