Farmers will get short-term crop loans of up to Rs 3 lakh at a subsidised interest rate of 4 percent this fiscal, provided they repay in time, or else a higher rate of 7 percent will be charged.
"The Central Government will provide interest subvention of 5 percent per annum to all farmers for short term crop loan up to one year for loan up to Rs 3 lakh borrowed by them during the year 2016-17. Farmers will thus have to effectively pay only 4 percent as interest.
"In case farmers do not repay the short term crop loan in time they would be eligible for interest subvention of 2 percent as against 5 percent available above," said an official statement issued after the Cabinet meeting.
The subvention scheme is applicable for all farmers availing short-term crop loans up to Rs 3 lakh for one year, Telecom Minister Ravi Shankar Prasad said.
Interest subvention scheme is for public and private sector banks, in addition to cooperative banks, regional rural banks and NABARD for providing short term crop loan to farmers.
Further, in order to give relief to small and marginal farmers who would have to borrow at 9 percent for the post harvest storage of their produce, the government has approved an interest subvention of 2 percent. This means the effective interest rate is 7 percent for loans up to six months.
Also, "to provide relief to the farmers affected by natural calamities, the interest subvention of 2 percent will be provided to banks for the first year on the restructured amount," the release added.
Government has set an agricultural credit target for banks at Rs 9 lakh crore for the current fiscal, up from Rs 8.5 lakh crore 2015-16.
The interest subvention scheme was earlier implemented by the Finance Ministry. It was transferred to the Agriculture Ministry this year.
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