Interest sops on crop loans hiked to 3 pc

In a bid to boost bank credit to farmers, the Government has raised the interest assistance provided to public sector banks by one per cent to three per cent for up to Rs 3 lakh short-term crop loans to agriculturalists for this fiscal.

“We have now been informed by the Union Ministry of Finance that the Government has approved interest subvention of three per cent, instead of two per cent, for the year 2008-09,” RBI said in a notification here. However, the banks, as earlier, will have to provide these loans to farmers at seven per cent per annum at the ground level. The increased subvention will also be applicable to cooperative banks and regional rural banks.

This implies that farmers will get loans at seven per cent rate of interest, but the banks will get three per cent interest from the government on the loans disbursed, so that excess of costs of funds are absorbed by the government.

The Finance Minister, in his budget speech for 2008-09, had said, “short-term crop-loans will continue to be disbursed at seven per cent per annum and I am making an initial provision of Rs 1,600 crore for interest subvention in 2008-09.”