What changed
The Government of India approved continuation of the Modified Interest Subvention Scheme for short-term KCC loans for FY2022-23 and FY2023-24. The lending rate to farmers remains at 7% with a 1.5% interest subvention to banks. An additional 3% prompt repayment incentive keeps the effective rate at 4% for timely payers. The scheme caps allied activity loans at ₹2 lakh within the ₹3 lakh overall limit.
What it means for you
Banks will receive 1.5% interest subvention on eligible KCC loans, reducing their funding cost. The prompt repayment incentive encourages farmer discipline, lowering NPA risk. The ₹2 lakh sub-limit for allied activities requires careful monitoring to ensure compliance. Small and marginal farmers get post-harvest storage benefits via WDRA warehouse receipts, potentially reducing distress sales.
What you must do
- Apply 7% lending rate to eligible KCC loans and track subvention eligibility for FY2022-23 and FY2023-24.
- Ensure timely repayment tracking to correctly apply the 3% prompt repayment incentive, reducing effective rate to 4%.
- Monitor allied activity loan disbursements to cap at ₹2 lakh per farmer within the ₹3 lakh overall limit.
- Facilitate post-harvest storage benefits for small and marginal farmers using WDRA warehouse receipts.
Who it affects
Public Sector Banks, Private Sector Banks (rural and semi-urban branches only), Small Finance Banks, Computerized Primary Agriculture Cooperative Societies ceded to SCBs, Farmers availing KCC loans for crop and allied activities
What is the effective interest rate for farmers who repay on time?
Farmers repaying within one year get an additional 3% prompt repayment incentive, reducing the effective rate from 7% to 4% per annum.
Is there a cap on loans for allied activities like dairy or fisheries?
Yes, within the overall ₹3 lakh limit, allied activities are capped at ₹2 lakh per farmer. Crop loans take priority for subvention benefits.
Which banks are eligible for the interest subvention?
Public Sector Banks, Private Sector Banks (in respect of loans given by their rural and semi-urban branches only), Small Finance Banks, and computerized PACS ceded to SCBs are eligible.