The government decided to release Rs 4,868 crore to state-owned banks for providing short-term crop loans to farmers at a concession of up to 4% to lending rates.
The decision, taken at a Cabinet meeting chaired by the Prime Minister Manmohan Singh, is aimed at bringing more farmers under the net of institutional credit and raising farm productivity.
The banks provide farm loans of up to Rs 3 lakh at 5-7% interest per annum and the government gives 2-4% subsidy to these banks and NABARD.
Farmers take short term loans to buy seeds at the beginning of the crop cycle and are usually payable within a year. Those farmers who pay back loans within 12 month are eligible for 4% subsidy, while others get 2% subsidy.
The government has since 2006-07 been subsidising short term crop loans. While farmers have been getting loans at a concession of two per cent in lending rates, those repaying their bank debts get 1.0% additional discount from last fiscal. This year, the amount of concession has been increased to 4.0% by the government.
For 2010-11, the target for agricultural credit flow has been raised to Rs 3,75,000 crore from Rs 3,25,000 crore in 2009-10.
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