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
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.