What is Interest Subvention Scheme? Know its Features, Benefits and Eligibility for Farmers

This article discusses the Interest subvention scheme for short-term agriculture loans, as well as a new notification outlining changes for the fiscal years 2022-23 and 2023-24. Interest subvention is the practice of reducing the interest rate on loans granted to a party. Historically, governments have offered subvention schemes to the agricultural and educational sectors as a form of subsidy and priority sector lending. However, interest subvention clauses are now appearing in loan agreements between related parties or group companies, causing confusion over how to categorize them.

Interest subvention for short term crop loans

The Central Government offers interest subvention to all farmers who borrow short-term crop loans up to Rs 3 lakh. The scheme allows farmers to access concessional crop loans at a 7% interest rate, with an additional subvention of 3% for prompt repayment within one year of the advance. This enables farmers to receive short-term crop loans up to Rs 3 lakh, payable within one year, at an interest rate of only 4% per annum. If farmers fail to repay the loan on time, they will still be eligible for a 2% interest subvention, compared to the standard 5%.

The interest subvention is calculated from the date of disbursement/drawl to the date of actual repayment or the due date fixed by the bank, whichever comes first, up to a maximum of one year. However, the scheme only covers credit requirements for crop cultivation and post-harvest loans under the ST limit of KCC. Expenses related to household consumption, maintenance of farm assets, and term loans are not included in the interest subvention scheme.

Interest subvention for post-harvest loans

To prevent distress sales, small and marginal farmers with Kisan Credit Cards can obtain post-harvest loans for storage in accredited warehouses against Negotiable Warehouse Receipts (NWRs) for up to six months. The Interest Subvention Scheme, which provides an interest rate reduction, will be implemented by NABARD and RBI and continue for one year.

The Central Government has approved a 2% interest subvention to provide relief to small and marginal farmers who would otherwise have to borrow at a 9% interest rate for post-harvest storage. As a result, loans up to six months will have an effective interest rate of 7%. Farmers will not be eligible for subvention incentives for prompt repayment of loans extended against NWRs.

What is the process to apply for Interest Subvention Scheme

The process to apply for the Interest Subvention Scheme may vary depending on the lending institution, but generally, it involves the following steps:

• Approach the bank or lending institution: The first step is to approach the bank or lending institution from where you want to avail the loan.

• Submit loan application: Submit a loan application along with the necessary documents required by the bank.

• Check eligibility: The bank will check your eligibility for the loan and also determine if you are eligible for the interest subvention scheme.

• Approval of loan: Once the loan is approved, the bank will disburse the loan amount to the borrower.

• Claiming interest subvention: The bank will claim the interest subvention on the eligible loan accounts and submit the claim to the government for reimbursement.

• It is advisable to check with the lending institution regarding the specific application process for availing the Interest Subvention Scheme.

Is there a process to apply for the Interest Subvention Scheme online?

The process to apply for the Interest Subvention Scheme may vary depending on the bank and the specific scheme. Some banks may offer an online application process for the scheme, while others may require the applicant to visit a bank branch and submit the application in person.

It is recommended to visit the official website of the bank or the Ministry of Agriculture and Farmers Welfare to get detailed information on the process to apply for the Interest Subvention Scheme. Alternatively, one can also contact the bank's customer service helpline for assistance in applying for the scheme.

What is the eligibility criteria for Interest Subvention Scheme?

The eligibility criteria for the Interest Subvention Scheme varies depending on the specific scheme and its guidelines. However, some general eligibility criteria are:

• The applicant must be a farmer or a rural entrepreneur engaged in agriculture or allied activities.
• The applicant must have a valid Kisan Credit Card (KCC) or equivalent credit card issued by the bank.
• The loan amount should be within the limit specified by the government for that particular scheme.
• The applicant must have a good repayment record and should not be a defaulter.
• The loan should be taken for the specified purposes, as mentioned in the scheme guidelines.
• It is advisable to check the specific eligibility criteria of the scheme before applying for the Interest Subvention Scheme.

What is the new Modified Interest Subvention Scheme?

The Reserve Bank of India (RBI) has introduced a new Modified Interest Subvention Scheme, notified on 23rd November 2022 via Notification number RBI/2022-23/139 FIDD.CO.FSD.BC.No.1 3/05.02.001/2022-23 for FY 2022-23 and 2023-24. The scheme aims to provide short-term crop loans and short-term loans for allied activities, including animal husbandry, dairy, fisheries, and beekeeping, to farmers through Kisan Credit Card (KCC) at a concessional interest rate.

Here are the key stipulations of the scheme:

• The interest subvention will be provided to lending institutions, including Public Sector Banks (PSBs), Private Sector Banks (only in respect of loans given by their rural and semi-urban branches), Small Finance Banks (SFBs), and computerized Primary Agriculture Cooperative Societies (PACS), which have been ceded with Scheduled Commercial Banks (SCBs), on use of their own resources. The interest subvention will be calculated on the loan amount from the date of disbursement/drawl up to the date of actual repayment of the loan by the farmer or up to the due date of the loan fixed by the banks, subject to a maximum period of one year. The lending rate to farmers and the rate of interest subvention for the financial years 2022-23 and 2023-24 will be 7% and 1.5%, respectively (before it was 2%).

• An additional interest subvention of 3% per annum will be provided to farmers repaying in time, i.e., from the date of disbursement of the loan/s up to the actual date of repayment or up to the due date fixed by the banks for repayment of such loan/s, subject to a maximum period of one year from the date of disbursement. Farmers repaying promptly as above would get short-term crop loans and/or short-term loans for allied activities including animal husbandry, dairy, fisheries, beekeeping, etc. at 4% per annum during the financial years 2022-23 and 2023-24. However, this benefit would not accrue to those farmers who repay their Agri loans after one year of availing such loans.

• The interest subvention and prompt repayment incentive benefits on short-term crop loans and short-term loans for allied activities will be available on an overall limit of 3 lakh per annum subject to a maximum sub-limit of 2 lakh per farmer in respect of those farmers involved only in activities related to animal husbandry, dairy, fisheries, beekeeping, etc. The limit for the crop loan component will take priority for interest subvention and prompt repayment incentive benefits, and the residual amount will be considered towards allied activities, including animal husbandry, dairy, fisheries, beekeeping, etc., subject to the cap mentioned above.

• To discourage distress sales by farmers and encourage them to store their produce in warehouses, the benefit of interest subvention under KCC will be available to small and marginal farmers for up to six months post-harvest of the crop against negotiable warehouse receipts on the produce stored in warehouses accredited with the Warehousing Development Regulatory Authority (WDRA) at the same rate as applicable to the crop loan.

• To provide relief to farmers affected by natural calamities, the applicable rate of interest subvention for that year will be made available to banks for the first year on the restructured loan amount. Such restructured loans will attract a normal rate of interest from the second year onwards.

• In order to provide relief to farmers affected by severe natural calamities, banks will receive an applicable rate of interest subvention for the first three years/entire period (up to a maximum of five years) on the restructured loan amount. Additionally, affected farmers will be eligible for the benefit of prompt repayment incentive at a rate of 3% per annum. The High Level Committee (HLC) will determine the grant of such benefits in cases of severe natural calamities, based on recommendations from the Inter-Ministerial Central Team (IMCT) and Sub Committee of the National Executive Committee (SC-NEC).

• Aadhaar linkage will remain mandatory for availing short-term loans under the ISS, ensuring hassle-free benefits to farmers in 2022-23 and 2023-24.

• All short-term loans processed in 2022-23 and 2023-24 must be brought onto the ISS portal/DBT platform. Lending institutions are advised to capture and submit category-wise data of beneficiaries under the Scheme and report the same on the ISS portal on an individual farmer-wise basis. This will ensure the settlement of audited claims arising from 2022-23 onwards.

What are The Banks and Financial Institutions' Responsibilities in this Scheme?

All eligible pending audited claims of the previous scheme years and for 2020-21, if any, must be submitted by all lending banks to us latest by December 31, 2022. Banks must submit their claims in respect of interest subvention annually, duly certified by their Statutory Auditors as true and correct, within a quarter from the close of the year. Any remaining claims related to disbursements made during 2022-23 and 2023-24, not included in the claim as of March 31 of the corresponding financial year, may be consolidated separately and marked as an "Additional Claim" and submitted latest by June 30, 2024, and June 30, 2025, respectively, duly certified by the Statutory Auditors as true and correct.

Regarding prompt repayment incentive, banks may submit their one-time consolidated claims related to the disbursements made during 2022-23 and 2023-24, accompanied by a Statutory Auditors' certificate certifying the claim as true and correct, within a quarter from the close of the financial year. Any remaining claim related to the disbursements made during 2022-23 and 2023-24 and repaid promptly during 2023-24 and 2024-25 respectively may be consolidated separately and marked as an "Additional Claim" and submitted latest by June 30, 2024, and June 30, 2025, respectively, duly certified by the Statutory Auditors as true and correct.

Banks may submit their interest subvention claims separately for each head pertaining to the disbursements made during the year, duly certified by the Statutory Auditors as true and correct, relating to post-harvest credit against negotiable warehouse receipts and loans restructured on account of natural calamities/severe natural calamities. The claims regarding computerized PACS ceded with SCBs may be submitted separately by the respective banks with the certification that interest subvention/prompt repayment incentive is being claimed on loans for which no refinance has been availed of from NABARD, duly certified by the banks' Statutory Auditors.

What are the points to keep in mind during audit and certification?

Here are the points to keep in mind during audit and certification:

• Banks must submit their interest subvention claims annually, certified as true and correct by their Statutory Auditors within a quarter from the end of the year.
• Any remaining claims not included in the annual claim for the years 2022-23 and 2023-24 may be consolidated separately and marked as an "Additional Claim," submitted latest by June 30, 2024, and June 30, 2025, respectively, also duly certified by the Statutory Auditors.
• Banks may submit a one-time consolidated claim for prompt repayment incentive, certified by their Statutory Auditors as true and correct, for the disbursements made during the years 2022-23 and 2023-24, within a quarter from the end of the financial year.
• This modified notification applies only to short-duration crops and not long-duration crops.
• Other allied activities such as animal husbandry, dairy, fisheries, beekeeping, etc., are covered.
• The limit for interest subvention is up to Rs. 3.00 Lakh for farmers through KCC, with priority given to crop loans and a maximum limit of Rs. 2.00 Lakh for allied activity loans.
• Interest subvention is calculated from the date of disbursement/drawl until the actual repayment of the loan by the farmer or the due date of the loan fixed by the bank, whichever is earlier, for a maximum period of one year.
• The rate of interest subvention has been reduced to 1.5% from the previous 2%, and the additional incentive subvention rate for prompt payment has been increased to 4% from the previous 3%.

FAQs on the Interest Subvention Scheme

Here are some frequently asked questions (FAQs) on the Interest Subvention Scheme:

Q1: What is the Interest Subvention Scheme?

Ans: The Interest Subvention Scheme is a government scheme that aims to provide cheaper credit to farmers. Under the scheme, farmers can get a short-term crop loan at a subsidized interest rate.

Q2: Who is eligible for the Interest Subvention Scheme?

Ans: All farmers who have a Kisan Credit Card (KCC) are eligible for the Interest Subvention Scheme. The KCC is a credit card that is issued to farmers by banks to provide them with short-term credit.

Q3: What is the interest rate for the Interest Subvention Scheme?

Ans: The current interest rate for the Interest Subvention Scheme is 1.5% per annum. The government provides an interest subvention of 2% to banks, which is passed on to the farmers, thereby reducing the interest rate to 1.5%.

Q4: What is the maximum loan amount under the Interest Subvention Scheme?

Ans: The maximum loan amount under the Interest Subvention Scheme is Rs. 3 lakhs per farmer. The subvention benefit will be available on the amount of loan up to Rs. 3 lakhs.

Q5: What is the repayment period for loans under the Interest Subvention Scheme?

Ans: The repayment period for loans under the Interest Subvention Scheme is up to one year from the date of disbursement/drawl or up to the due date of the loan fixed by the bank, whichever is earlier.

Q6: Is the Interest Subvention Scheme applicable for all crops?

Ans: No, the Interest Subvention Scheme is applicable only for short-term crop loans. It is not applicable for long-duration crops. However, the scheme also covers allied activities such as animal husbandry, dairy, fisheries, beekeeping, etc.

Q7: How can farmers apply for loans under the Interest Subvention Scheme?

Ans: Farmers can apply for loans under the Interest Subvention Scheme by approaching their nearest bank branch. They will have to provide their Kisan Credit Card and other relevant documents.

Q8: Can farmers get the benefit of the Interest Subvention Scheme for allied activities as well?

Ans: Yes, farmers can get the benefit of the Interest Subvention Scheme for allied activities as well, subject to a maximum limit of Rs. 2 lakhs. However, priority will be given to crop loans over allied activity loans.