The government on Friday approved compensation of Rs.4,868 crore to public sector banks for providing loans to farmers at lower interest rates.
"The Cabinet today gave its approval for the release of a sum of Rs.4,868 crore as interest subvention to Public Sector Banks (PSBs), Regional
Rural Banks (RRBs) and Cooperative Banks and to NABARD for refinance to RRBs and Cooperative Banks at concessional rates to reimburse the amount of interest subvention," said the government in a statement.
National Bank for Agriculture and Rural Development (NABARD) is an apex development bank set up to facilitate credit flow to agriculture, small-scale industries and cottage and village industries.
For the year 2010-11, the government has subsidised short-term crop loans to a maximum of Rs.3 lakh to farmers, with a lower 7 percent interest.
This interest is further brought down to 5 percent in cases when loan repayment happens within the schedule. In the previous fiscal, an interest subvention of one percent was given to farmers who stuck to the payment schedule.
The subsidy scheme has been running since 2006-07.
For the 2010-11 fiscal, the target for agricultural credit flow has been raised to Rs.3,75,000 crore from Rs.3,25,000 crore in 2009-10.