Compensation of Losses to Cooperative Credit Structure

In order to provide short term crop loans upto ₹ 3.00 lakh to farmers at a concessional interest rate of 7 per cent per annum, the Government of India in the Department of Agriculture Cooperation and Farmers Welfare (DAC&FW) implements an interest subvention scheme which provides interest subvention of 2% per annum to lending institutions viz. Public Sector Banks (PSBs), Private Sector Commercial Banks (in respect of loans given by their rural and semi urban branches only), Regional Rural Banks (RRBs) and Cooperative Banks on use of their own resources.  Besides, additional 3% incentive is given to the farmers for prompt repayment of the loan, thereby reducing the effective rate of interest to 4%.

Under the Scheme, the Government provides interest subvention of 2% directly to the Cooperative Banks for such crop loans to make good the loss that the banks may incur on account of involvement of their own funds.

Further, National Bank for Agriculture & Rural Development (NABARD) provides short term refinance support to Cooperative Banks at the concessional interest rate of 4.5% through the Short Term Cooperative Rural Credit (Refinance) Fund (STCRC), made out of the shortfall in priority sector lending targets by scheduled commercial banks.

Due to the limited corpus, credit limit is sanctioned to the Cooperative Banks to the extent of 40% of Realistic Lending Programme and the average utilisation limit in previous years, as per the extant policy of NABARD. There is no proposal under consideration of the Union Government to increase the refinancing limit of NABARD.

This was stated by Shri Anurag Singh Thakur, Minister of State for Finance & Corporate Affairs in a written reply to a question in Rajya Sabha today.