Modified Interest Subvention Scheme for KCC Loans 2021-22
Current · Source: Reserve Bank of India · RBI/2022-23/35 · issued 28 Apr 2022 · ~2 min read
Quick answerRBI extends modified Interest Subvention Scheme for short-term KCC loans up to ₹3 lakh for 2021-22. Banks get 2% subvention; farmers repaying on time pay only 4% interest. Scheme covers crop and allied activities, with additional post-harvest relief for small/marginal farmers.
The rule, in the simplest words
Banks must give KCC (Kisan Credit Card, a special loan card for farmers) loans up to ₹3 lakh at 7% interest, and the government will give the bank 2% back as a reward.
If a farmer pays back the loan on time, the bank must lower the interest to 4% (7% minus a 3% bonus for being on time).
For loans used for allied activities (like dairy or fishing), only up to ₹2 lakh per farmer gets the low interest benefit.
Small and marginal farmers (those with very little land) who store their crops in a government-approved warehouse can get the low interest for up to 6 months after harvest.
For loans that were restructured (changed) because of a natural disaster, the bank can claim the 2% reward only for the first year, or for three years if the disaster was very severe.
How it plays out — a real example
An agri & priority-sector lending officer in Indore processes a KCC loan of ₹2.5 lakh for a farmer growing wheat. She sets the interest rate at 7%, knowing the government will pay her bank 2% subvention. She also notes that if the farmer repays on time, the effective rate drops to 4%, and she caps the allied activity portion at ₹2 lakh as per the rule.
What changed
Government approved continuation of the Interest Subvention Scheme with modifications for FY 2021-22. Lending rate to farmers is fixed at 7%, with 2% subvention to banks. An additional 3% prompt repayment incentive reduces effective rate to 4% for timely payers. Allied activities sub-limit capped at ₹2 lakh per farmer.
What it means for you
Banks must apply the concessional 7% lending rate on KCC loans up to ₹3 lakh and claim 2% subvention from government. Timely repayment by farmers triggers an extra 3% incentive, lowering their effective cost to 4%. For restructured loans due to natural calamities, subvention applies only for the first year; for severe natural calamities, subvention applies for first three years/entire period up to five years as decided by HLC. Small and marginal farmers get up to six months post-harvest subvention on warehouse receipts.
What you must do
Update KCC loan systems to apply 7% lending rate and track subvention claims for FY 2021-22.
Ensure prompt repayment incentive of 3% is passed on only to farmers repaying on time.
Cap allied activity loans at ₹2 lakh per farmer for subvention benefits; prioritize crop loan component.
Extend post-harvest subvention for small/marginal farmers storing produce in WDRA-accredited warehouses.
For restructured loans due to natural calamities, claim 2% subvention only for the first year; for severe natural calamities, claim for first three years/entire period up to five years as per HLC decision.
Who it affects
Public Sector Banks, Private Sector Banks (rural and semi-urban branches only), Small Finance Banks, Computerized Primary Agriculture Cooperative Societies (PACS) ceded with Scheduled Commercial Banks (SCBs), Farmers availing KCC loans up to ₹3 lakh
❓ Common questions
What is the effective interest rate for farmers who repay on time under this scheme?
Farmers repaying promptly get an additional 3% subvention, reducing the effective rate from 7% to 4% per annum for FY 2021-22.
Are allied activities like dairy and fisheries covered under the ₹3 lakh limit?
Yes, but the subvention for allied activities is capped at ₹2 lakh per farmer. The crop loan component gets priority for subvention benefits.
How does the scheme help farmers affected by natural calamities?
For restructured loans due to natural calamities, banks get 2% interest subvention for the first year only. For severe natural calamities, subvention is available for first three years/entire period up to five years as decided by a High Level Committee. Normal rates apply from the second year onward in non-severe cases.
📜 Read the original circular — full text as issued by RBI
RBI/2022-23/35
FIDD.CO.FSD.BC.No.3/05.02.001/2022-23
April 28, 2022
The Chairman / Managing Director / Chief Executive Officer
All Public Sector Banks, Private Sector Banks and
Small Finance Banks
Madam/Dear Sir,
Modified Interest Subvention Scheme for Short Term Loans for Agriculture and Allied Activities availed through Kisan Credit Card (KCC) during the financial year 2021-22
Please refer to our letter FIDD.CO.FSD.No.342/05.02.001/2020-21 dated October 16, 2020 conveying the decision of the Government of India for continuation of the Interest Subvention Scheme (modified) for short term loans for agriculture and allied activities for the year 2020-21 on interim basis.
2. In this regard, it is advised that Government of India has approved the continuation of the Interest Subvention Scheme (ISS) with modifications for the financial year 2021-22 with the following stipulations:
In order to provide short term crop loans and short term loans for allied activities including animal husbandry, dairy, fisheries, bee keeping etc. upto an overall limit of ₹3 lakh to farmers through KCC at concessional interest rate during the year 2021-22, it has been decided to provide interest subvention of 2% per annum to lending institutions viz. Public Sector Banks (PSBs) and Private Sector Banks (in respect of loans given by their rural and semi-urban branches only), Small Finance Banks (SFBs) and computerized Primary Agriculture Cooperative Societies (PACS) which have been ceded with Scheduled Commercial Banks (SCBs), on use of their own resources. This interest subvention of 2% per annum will be calculated on the loan amount from the date of disbursement/drawal up to the date of actual repayment of the loan by the farmer or up to the due date of the loan fixed by the banks, whichever is earlier, subject to a maximum period of one year. The applicable lending rate to farmers and the rate of interest subvention for the financial year 2021-22 will be as follows: Financial Year
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2022-23/35 · issued 28 Apr 2022. The plain-English explanation above is BankPulse’s own independent summary.
Update KCC loan systems to apply 7% lending rate and track subvention claims for FY 2021-22.
📜 Compliance
Ensure prompt repayment incentive of 3% is passed on only to farmers repaying on time.
Cap allied activity loans at ₹2 lakh per farmer for subvention benefits; prioritize crop loan component.
Extend post-harvest subvention for small/marginal farmers storing produce in WDRA-accredited warehouses.
For restructured loans due to natural calamities, claim 2% subvention only for the first year; for severe natural calamities, claim for first three years/entire period up to five years as per HLC decision.
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, Private Sector Banks (rural and semi-urban branches only), Small Finance Banks, Computerized Primary Agriculture Cooperative Societies (PACS) ceded with Scheduled Commercial Banks (SCBs), Farmers availing KCC loans up to ₹3 lakh), your first concrete step on “Modified Interest Subvention Scheme for KCC Loans 2021-22” is: “Update KCC loan systems to apply 7% lending rate and track subvention claims for FY 2021-22.” (RBI issued this 28 Apr 2022).
Action required: Update KCC loan systems to apply 7% lending rate and track subvention claims for FY 2021-22.
Action required: Ensure prompt repayment incentive of 3% is passed on only to farmers repaying on time.
Action required: Cap allied activity loans at ₹2 lakh per farmer for subvention benefits; prioritize crop loan component.
Action required: Extend post-harvest subvention for small/marginal farmers storing produce in WDRA-accredited warehouses.
Action required: For restructured loans due to natural calamities, claim 2% subvention only for the first year; for severe natural calamities, claim for first three years/entire period up to five years as per HLC decision.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
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.
💬 Banker Discussion
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BankPulse Compliance Evidence Pack — generated 03 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=12302&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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