Interest subvention: FinMin may seek extra Rs15,000 cr

The Budget 2015-16 had allocated Rs13,000 crore to the scheme, under which banks extend short-term loans of up to Rs3 lakh to farmers at an interest rate of 7 per cent.

Written by Surabhi | Amitabh Sinha & D K Singhnew Delhi | Published:May 6, 2015 2:05 am

With unseasonal rains and hailstorms resulting in crop damage across vast parts of the country, the finance ministry is likely to seek an additional Rs 15,000 crore in the current fiscal to meet requirements of farmers under the interest subvention scheme for short-term crop loans.

“The scheme is very popular with farmers and it is expected that they would seek additional funds under the scheme owing to the unseasonal rains in March and April,” said a senior government official, adding that additional funds may also be required to meet the backlog of pending claims of banks.

The issue was also raised by the Standing Committee on finance in a report tabled in Parliament last week, which noted that Budgetary allocation to the scheme in the past few years has been lower than the actual requirement, leading to a backlog of settlement and release of claims by banks.

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The Budget 2015-16 had allocated Rs 13,000 crore to the scheme, under which banks extend short-term loans of up to Rs 3 lakh to farmers at 7 per cent interest rates. In turn, the government provides a subvention of 2 per cent to the lenders. Prompt repayment by farmers also earns them an additional 3 per cent subvention by the government.

“As against the required expenditure of Rs 11,343 crore, Rs 15,649 crore and Rs 18,904 crore for the scheme in 2012-13, 2013-14 and 2015-16, respectively, the budgetary allocation towards this end have been Rs 5,400 crore, Rs 6,000 crore and Rs 6,000 crore during 2012-13, 2013-14 and 2015-16 respectively,” the report noted.

By the end of the fiscal, a backlog of Rs 6,500 crore in settlement of claims is expected while further claims in the range of Rs 28,000 crore to Rs 29,000 crore are expected for each of the past three financial years.

“When the Committee pointed out the extent of under allocation under this head, particularly when unseasonal rains have wreaked havoc causing extensive damage to crops in central and north India, the (finance) ministry conceded that additional provision of about Rs 15,000 crore may be required depending upon actual claims received,” said the Parliamentary panel in its report. Additional expenditure for the scheme is expected to be sought by the ministry during the course of the year, the official said.

The move comes at a time when the government is also revamping the scheme to ensure better targeting for small and marginal farmers. A new scheme is expected to be unveiled over the next few months and banks have been advised to continue the existing scheme till June 30.

According to a report by India Ratings, the losses faced by farmers impacted by the unseasonal rains are estimated at around Rs 20,000 per acre, as full crops were destroyed, affecting states including Uttar Pradesh, Haryana, Uttarakhand, Jammu and Kashmir, Bihar, Rajasthan and Maharashtra.

“The government is also contemplating a loan restructuring or interest subvention effort, aimed at providing relief to the farmers’ debt obligation. While this may reduce the NPL (non-performing loan) classification of these loans, we expect the loan loss provisioning to be in line with NPLs according to regulation applicable from 2015-16,” it said.

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