New Delhi, Aug 17 (IANS): The Union Cabinet on Wednesday cleared a proposal to provide interest subvention of 1.5 per cent per annum to banks for providing short term agriculture loan of upto Rs 3 lakh.

The interest subvention will be provided for a period of two financial years, i.e. 2022-23 to 2024-25. This increase in interest subvention will require an additional budgetary provision of Rs 34,856 crore.

After the cabinet meeting, Union Minister for Information and Broadcasting Anurag Thakur told the media that the move is aimed at providing financial assistance to banks who give short term loans to farmers under the modified interest subvention scheme, keeping in mind the fact that repo rates have been hiked in recent months.

The decision will also ensure that short term credit facility to farmers continues and they do not have to pay higher interest rate on loans.

Official sources said that the increase in interest subvention will ensure sustainability of credit flow in the agriculture sector as well as ensure financial health and viability of the lending institutions especially regional rural banks and cooperative banks, ensuring adequate agriculture credit in the rural economy.

Under the interest subvention scheme, loans are provided to farmers at 7 per cent interest rate. On timely payment of loans, farmers have to pay only 4 per cent interest on loans as they get 3 per cent interest subvention.