The interest subvention scheme for farmers intends to provide farmers with short-term finance at a reduced interest rate. The policy went into effect in the Kharif of 2006-07. The system is being introduced for the 2020-21 fiscal year.
The interest subsidy will be paid to Public Sector Banks (PSBs), Private Sector Banks (PSBs), Cooperative Banks, and Regional Rural Banks (RRBs) on the basis of their own finances, as well as to NABARD for refinancing to RRBs and Cooperative Banks.
NABARD and the RBI are implementing the Interest Subvention Scheme.
Post-harvest loans for storage in authorised warehouses against Negotiable Warehouse Receipts (NWRs) are provided for up to 6 months for KCC-holding small and marginal farmers as a tool to reduce distress sales. The Interest Subvention Scheme will be implemented by NABARD and the RBI for one year.
To assist small and marginal farmers who would otherwise have to borrow at 9% for post-harvest storage of their produce, the Central Government has granted a 2% interest subvention, resulting in an effective interest rate of 7% for loans up to 6 months. Farmers will not be eligible for a subsidy (reward) for the timely repayment of loans made against NWRs.
Interest subvention for relief to farmers affected by natural calamities
To assist farmers afflicted by natural disasters, a 2% interest subsidy will be offered to banks for the first year on the restructured amount. According to the RBI’s regulation, such restructured loans will be subject to normal interest rates beginning in the second year.
However, to assist farmers affected by catastrophic natural disasters, Banks will be permitted to offer a 2% interest subsidy on the restructured loan amount for the first three years/entire term (up to a maximum of five years). Furthermore, in all such circumstances, the impacted farmers will be eligible for a quick payback incentive of 3% per year.
Interest subvention for the Dairy sector
To offset the economic impact of Covid-19 on the dairy sector, the Ministry of Fisheries, Animal Husbandry, and Dairying have introduced a new scheme “Interest Subvention on Working Capital Loans for Dairy Sector” for Supporting Dairy Cooperatives and Farmer Producer Organizations engaged in dairy activities (SDC&FPO) for implementation in 2020-21.
To meet the working capital needs of cooperatives and farmer-owned milk producer companies, interest subvention will be given on working capital loans taken from scheduled Commercial Banks/R.R.Bs/Cooperative Banks/Financial Institutions by cooperatives/FPOs between 1st April 2020 and 31st March 2021 for conversion of milk into conserved commodities and other milk products.
Many farmers are unable to travel to bank branches to pay their short-term crop loan dues as a result of the statewide lockdown caused by the onset of the Covid -19 pandemic and the resulting limitations on people’s movement. According to an RBI circular dated March 27, 2020, about the Covid 19-Regulatory Package, a three-month moratorium has been issued on payment of instalments due between March 1, 2020, and May 31, 2020, in respect of all term loans, including short-term crop loans.
As a result, in order to ensure that farmers do not have to pay penal interest while continuing to benefit from the interest subvention scheme, the government has decided to extend the availability of 2% IS and 3% PRI to farmers for an extended period of repayment up to 31.08.2020 or the date of repayment, whichever is earlier, for short term crop loans up to Rs 3 lakh per farmer that became due between March 1, 2020, and August 31, 2020.