All about Interest Subvention Scheme

The Government of India has launched the Interest Subsidy Scheme (ISS) for farmers by providing loans to them at a subsidised interest rate. Farmers can get short-term crop loans up to Rs. 3 lakh at an interest rate of 7 percent for one year under the interest subsidy scheme. In this article, we take a detailed look at the Interest Subvention Scheme (ISS).

What is Interest Subvention Scheme?

In his budget statement for 2006-07 (para 49), the Honourable Finance Minister declared that the Government has resolved to guarantee that farmers obtain short-term loan at 7% with a maximum principle amount of Rs. 3.00 lakh. The policy went into action in the Kharif of 2006-07. The amount of subvention was to be computed on the amount of crop loan from the date of disbursement up to the actual date of crop loan repayment by the farmer or up to the due date of the loan established by the banks, whichever was sooner, subject to a maximum term of one year.

In response to this announcement, the Government of India provided a 2% interest subsidy to Public Sector Banks, Regional Rural Banks (RRBs), and Co-operative Banks in respect of short-term production credit up to Rs. 3 lakh provided to farmers from their own resources, on the condition that they make available short-term credit at a rate of 7% p.a. at the ground level. Private Sector Banks (for loans made by their rural and semi-urban branches) are also covered by the plan beginning in 2013-14, with comparable terms and conditions.

Purpose of Interest Subvention Scheme

The following are the purpose of Interest Subvention Scheme:

• Farmers can avail crop loans up to Rs. 3 lakh at a 7% interest rate, with prompt repayment by the farmer within one year.
• In the case of fast farmers, short-term crop loans are provided at an interest rate of 4% per annum. The effective interest rate will be about 4% for short-term crop loans.
• The amount is provided to public and private sector banks (PSBs), regional rural banks (RRBs), and cooperative banks using their own resources and NABARD for refinancing RRBs and cooperative banks.
• The programme initiated by NABARD and RBI offers post-harvest loans for storage in accredited warehouses against negotiable warehouse receipts for a period of six months.
• If farmers fail to repay the crop loan (short term) on time, they would be entitled to an interest rate of 2 percent as opposed to the 5 percent available above.

Benefits Provided Under the Interest Subvention Scheme

Under this scheme, interest relief is provided on outstanding loans or balances of small and medium enterprises at the rate of 2% p.a. from the date of disbursement of the loan or from the date of notification of this scheme, whichever is later. An interest subsidy of 2% is provided to SMEs on new or incremental amounts of approved working capital or new or incremental term loans disbursed by eligible institutions.

Interest Subvention for Short Term Crop Loans

The Central Government provides interest subsidy to all farmers for short-term crop loan up to one year, for loan up to Rs. They borrowed 3 million with them. Under this scheme, farmers can avail concessional crop loans up to Rs 3 lakh at 7% interest rate. It also stipulates an additional subsidy of 3 percent for quick repayment within one year from the date of advance. The scheme will help farmers avail short-term crop loans up to Rs. 3 lakh payable within one year at only 4 percent per annum. In case farmers fail to repay the short-term crop loan on time, they will be entitled to an interest subsidy of 2% against the 5% available above.

Interest Subvention for post Harvest Loans

Post-Harvest Loans for storage in accredited warehouses against Negotiable Warehouse Receipts (NWR) as a measure to control distress sales. Loans are available for up to 6 months for KCC small and marginal farmers. NABARD and RBI will implement this scheme as it will continue for a period of one year.

Farmers, who have to borrow 9 per cent for post-harvest storage of their produce, have been allowed an interest subsidy of 2 per cent from the Central Government (ie, an effective interest rate of 7 per cent for these loans for up to 6 months).

New Modified Interest Subvention Scheme

For the purpose of providing short-term crop loans for related activities including animal husbandry, dairy, fisheries, beekeeping etc. up to a total limit of ₹ 3lakh to farmers through KCC at a concessional interest rate during 2022-23 and 2023 -24, it was decided to provide an interest subsidy to credit institutions, viz. Public Sector Banks (PSBs) and Private Sector Banks (only in respect of loans extended by their rural and semi-urban branches), Small Finance Banks (SFBs) and Primary Agriculture Computerized Cooperative Societies (PACS) which have been transferred to Scheduled Commercial Banks (SCBs) , using their own resources. This interest subsidy is calculated on the loan amount from the date of disbursement/drawdown to the date of actual repayment of the loan by the farmer or the maturity date of the loan set by the banks, whichever is earlier, subject to a maximum period of one year.

Responsibility of Banks and Financial Institutions

The following are the responsibility of Banks and Financial Institution:

• All lending banks can submit to us their eligible backlog of audited applications from previous years of the programme and also for 2020–21, if any, by December 31, 2022, at the latest.
• As regards interest subsidies, banks are required to submit their claims duly certified as true and correct by their statutory auditors within a quarter of the year’s end. Any remaining claim relating to payments made during 2022–23 and 2023–24 that is not included in the claim as of 31 March of the relevant financial year may be consolidated separately and marked as “Other Claim” and submitted by June 30 at the latest, 2024, and June 30, 2025, respectively, duly verified as true and correct by the statutory auditors.
• As regards the prompt repayment incentive, banks can submit within one quarter their one-time consolidated claims relating to payments made in 2022–23 and 2023–24, along with a statutory auditor’s certificate certifying that the claim is true and correct from the end of the financial year. Any remaining claim in respect of payments made during 2022–23 and 2023–24 and promptly repaid during 2023–24 and 2024–25, respectively, may be consolidated separately, marked as an “Additional Claim,” and submitted no later than June 30, 2024, and 2025, having been duly verified as true and correct by the statutory auditors.

Conclusion

To discourage farmers from distress sales and encourage them to store their produce in warehouses, the benefit of interest subsidy under KCC will also be available to small and marginal farmers for a further period of up to six months after the crop is harvested against marketable warehouse receipts of products stored in warehouses accredited with the Warehousing Development Regulatory Authority (WDRA).