Interest subvention on short term crop loan: RBI extends the time limit

RBI today (April 21, 2020) announced that “to ensure that farmers do not have to pay penal interest and at the same time continue getting the benefits of interest subvention scheme, Government has decided to continue the availability of 2% IS and 3% PRI to farmers for the extended period of repayment up to 31.05.2020 or date of repayment, whichever is earlier, for short term crop loans up to ₹3 lakh per farmer which have become due between March 01, 2020 and May 31, 2020. “RBI being conscious of the situation that many farmers are not able to travel to bank branches for payment of their short term crop loan dues in the wake of the nationwide lockdown due to outbreak of COVID -19 pandemic and the resultant restrictions imposed on movement of people”, the communication said.

On April 16, 2020, RBI has announced granting three months moratorium on payments of installments falling due between March 1, 2020 and May 31, 2020 in respect of all term loans including short term crop loans. The commercial banks (both public and private) are eligible for interest subvention at the rate of 2 percent in respect of short term crop loans by their rural and semi-urban branches. The funds used for short term crop loan up to Rs.3 lakh should be from banks’ own funds and the interest charged to the farmers should be at the ground level of 7 percent per annum.  The farmers who promptly repay the loan on or before the due date are also eligible for additional interest subvention at the rate of 3 percent per annum. The interest subvention amount is calculated from the date of the loan availed to the date of closure of the loan. The benefit of interest subvention would not accrue to those farmers who repay after one year after disbursement of the loan. In actual terms, this implies that the farmers who repay the short term crop loan promptly would get the loan at the interest rate of 4 percent per annum. This benefit would not accrue to those farmers who repay after one year of availing such loans.

 Accordingly, banks are advised by the Central Bank to extend the benefit of IS of 2% and PRI of 3% for short term crop loans upto ₹3 lakh to farmers whose accounts have become due or shall become due between March 1, 2020 and May 31, 2020.