Interest subvention scheme for farm loans

In a boost to the farm sector, the Union Cabinet recently approved restoring the interest subvention on short-term agriculture loans for all financial institutions.

The Cabinet approved a 1.5% interest subvention on short-term farm loans up to ?3 lakh, which will be provided to lending institutions for the financial year 2022-23 to 2024-25.

Interest Subvention Scheme:

• The interest subvention scheme was introduced in 2006-07 with the view of providing concessional credit to farmers.
• This will help farmers getting short term crop loan up to Rs. 3 lakh payable within one year at only 4% per annum.
• The interest subvention will be given to Public Sector Banks (PSBs), Private Sector Banks, Cooperative Banks and Regional Rural Banks (RRBs) on use of own funds and to NABARD for refinance to RRBs and Cooperative Banks.

Positives:

• Increase of formal loaning system
• Increase in financial inclusion.
• Decrease in interest rates of money-lenders
• Decrease in farmers distress due to availability of loan for agriculture on lesser rates of interest

Negatives

• Big farmers gets most of the benefit as scheme do not differentiate b/w small and big farmers
• Net loan value is more than the entire agriculture input gives sign of diversion of funds.
• Though net loan value has increased, farmers income goes down
• No substantial increase in production
• Delay in settlement of interest and low budgetary support to scheme hampers banks growth
• Non-institutional loan sources still prevail because of lesser number of bank branches in rural areas
• Unsettled claims lie at 35,000 crore and the current budgetary allocation is not enough to solve the problem.