New Delhi: A nine-year-old scheme that helps farmers avail of cheap crop loans is very much in place, a senior finance ministry official said, after Union finance minister Arun Jaitley’s failure to mention it in the budget speech led to banks denying the benefits of the scheme to farmers.

Under the scheme, banks extend short-term crop loans to farmers at a concessional rate of 7%, as against the regular rate of 10-11%.

Farmers get a further 3 percentage point discount for timely repayment, thus making the effective interest rate just 4%.

However, some state-run banks have been denying such loans since the beginning of this fiscal year, The Hindu reported on Sunday (bit.ly/1IExgoc), adding to the bad press for the National Democratic Alliance (NDA) government, which is fighting perceptions that its policies hurt farmers.

Though Jaitley’s 2014-15 budget speech had specifically mentioned the continuation of the scheme, there was no such mention in his 2015-16 budget speech.

However, a senior finance ministry official said the scheme will continue. “The scheme of interest subvention in its present form continues. If there is any misunderstanding, we will clarify it to all banks tomorrow (Monday)," the official said.

Another person familiar with the matter said Jaitley has allocated 13,000 crore for the scheme for 2015-16, higher than the amount paid in 2014-15.

The government, in its revised estimates for 2014-15, had set aside 9,476.71 crore for the scheme, according to budget documents.

Under the scheme introduced in 2006-07, the central government pays some of the interest on crop loans on behalf of farmers. It was later expanded, incentivizing timely loan repayment.

Banks have been set a target of lending 8.5 trillion to the agriculture sector in the current fiscal, as against 8 trillion in the year-ago period.

Confusion over the continuation of the scheme comes at a time when the government is battling opposition parties over amendments to the land acquisition Act that seek to make it easier to acquire land.

While opposition parties have opposed the amendments, calling them pro-business and anti-farmer, the Bharatiya Janata Party-led NDA is trying hard to dispel this notion.

The government was quick to announce a higher compensation package for crop damage because of unseasonal rain over the past month. It also made it easier for farmers to claim such compensation and for banks to restructure the loans of distressed farmers.

“Since crop loans have a small ticket size and are of a short duration, the cost of servicing these loans for banks is high. This sector also has very high NPL (non-performing loans) ratio," said Vibha Batra, senior vice-president at rating agency Icra Ltd.

“The interest subvention scheme encourages borrowers to repay their loans on time. But the government’s tendency to announce a debt waiver during a natural calamity like a drought spoils the credit culture and negates the positive impact of encouraging timely payment under the interest subvention scheme," she said.

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