What changed
The government raised the additional interest subvention for timely repayment of short-term crop loans from 1% to 2% for 2010-11, as announced in the Union Budget. This brings the effective interest rate for prompt-paying farmers down to 5% per annum. Banks are now required to submit realistic estimates of short-term production credit and follow specific claim submission procedures.
What it means for you
Public sector banks must offer short-term crop loans up to Rs.3 lakh at 7% interest, with the government reimbursing 1.5% subvention. For farmers who repay on time, banks get an extra 2% subvention, making the effective rate 5%. Banks need to manage cash flow for the upfront lower rate and submit half-yearly claims with auditor certification.
What you must do
- Submit realistic estimates of short-term production credit up to Rs.3 lakh for 2010-11 to RBI immediately.
- Ensure all eligible farmers receive short-term crop loans at 7% per annum, and prompt payers at 5% per annum.
- Submit half-yearly claims for 1.5% subvention by September 30, 2010 and March 31, 2011, with statutory auditor certification for the year-end claim.
- Submit one-time consolidated claims for 2% additional subvention by April 30, 2012, duly audited.
- Give adequate publicity to the scheme so farmers are aware of the benefits.
Who it affects
All Public Sector Banks, Farmers availing short-term crop loans up to Rs.3 lakh, Statutory Auditors of banks
What is the effective interest rate for farmers who repay their crop loans on time?
For prompt-paying farmers, the effective interest rate is 5% per annum, after accounting for the 1.5% base subvention and 2% additional subvention.
What is the deadline for submitting claims for the additional 2% subvention?
Banks must submit one-time consolidated claims for the 2% additional subvention by April 30, 2012, with statutory auditor certification.
Are RRBs and co-operative banks covered by this circular?
No, this circular applies only to Public Sector Banks. A separate circular will be issued for RRBs and co-operatives.