Mumbai: The Reserve Bank of India or RBI on Wednesday said the government has decided to increase the interest subvention scheme for short-term credit up to Rs3 lakh given to farmers to 3% from 2%.
Banks offer such loans at a concessional rate of 7%. Since this does not cover the average cost of funds, the government gives subsidy to banks. So far, this has been 2%.
“Public sector banks would be eligible for interest subvention of 3% in respect of short-term production credit up to Rs3 lakh provided to farmers for the year 2008-09” said a RBI release.
Higher subsidy will help bank cut losses on small farm loans. At the same time, it will widen the government’s fiscal deficit.