Short-term loans sop to farmers may cost Rs 1,600 cr

The government will spend Rs 1,600 crore in the current financial year to provide farmers with a subsidy on the interest they would pay on short-term agricultural loans.

The current year's target for total agricultural lending is Rs 1,75,000 crore, of which 70 per cent would be short-term credit.

The government will provide subvention of 2 per cent to commercial banks and regional rural banks on all agricultural crop lending of up to Rs 3 lakh, a finance ministry official said.

As part of the package, the National Bank for Agricultural and Rural Development (NABARD) will refinance cooperative banks and regional rural banks at 2.5 per cent and 4.5 per cent, respectively.

The government will not provide subvention to private sector banks and cooperative banks that give short-term agricultural credit as part of their own lending programmes.

As state governments have a major stake in the cooperative banking structure, the Centre expects them to help cooperative banks in providing subsidised short-term agricultural credit.

The government's plan to provide subvention has come on the heels of Finance Minister P Chidambaram's promise in the last Union Budget that the government would ensure that the farmer receives short-term credit at 7 per cent.

Chidambaram's Budget speech had set Rs 3,00,000 as the ceiling on the size of the loan that would qualify for subsidy on the interest rate.

The bulk of the short-term credit for agricultural crop lending this financial year would come from public sector banks, followed by cooperative banks.

Public sector banks are expected to lend Rs 55,000 crore this financial year, cooperative banks' target for the year is Rs 36,000 crore, and private sector banks and regional rural banks are to likely to lend Rs 15,000 crore each.