The Bihar government has written to Union Finance minister Pranab Mukherjee seeking extension of interest subsidy for three years on short term crop loans in 26 drought hit districts.
Deputy Chief Minister Sushil Kumar Modi, who wrote to Mukherjee said the state government's decision to stay the recovery of farm loans in 26 drought hit districts would cost heavily as banks have made it clear that they were unable to extend the interest subsidy for three years given the existing banking rules.
Modi, who also holds the finance portfolio, said that banks have agreed to re-schedule short term crop loans in 26 affected districts, but loans would be charged at the rate of 10 per cent for three years.
At present, one year short term loans were available at 10 per cent interest with farmers having to repay the principal alongwith seven per cent interest. The remaining three per cent was borne by the union government as subsidy.
Modi said in his letter hoped the Finance minister would take the initiative to keep the interest component at seven per cent in view of the severe drought situation in the state.