Cabinet move to continue cheap loans for farmers

Continuing its policy of subsidised short-term crop loans to farmers, the union cabinet on Friday approved release the of Rs4,868 crore to state-owned banks, including public sector banks, regional rural banks (RRBs), cooperative banks and NABARD.

The decision will ensure that farmers receive short-term crop loans at 7 per cent per annum (5 per cent for prompt payers) with an upper limit of Rs3 lakh on the principal amount during 2010-11.

"The union cabinet today gave its approval for the release of Rs 4,868 crore as interest subvention to public sector banks for refinance to RRBs at concessional rates to reimburse the amount of interest subvention to ensure that the farmer, in general, should receive short-term crop loan at 7 per cent per annum this fiscal," the government said in a statement yesterday.

The decision, taken at a cabinet meeting chaired by Prime Minister Manmohan Singh, is aimed at bringing more farmers under the net of institutional credit and raising farm productivity.

The government has been subsidising since 2006-07 short-term crop loans to farmers in order to ensure the availability of crop loans to farmers at 7 per cent per annum. This interest subvention scheme will continue this fiscal.

"In the year 2009-10, an additional subvention of 1 per cent was being provided to farmers who repay on time. This has been increased to 2 per cent in 2010-11. Thus, the effective rate of interest for such farmers will be five per cent per annum," said the statement.