Understanding New Interest Subvention Scheme

Introduction

Interest subvention is the reduction of interest rate, when granting a loan to a party. Traditionally, these subvention schemes have been offered by the Government to the Agricultural or Educational sector and can be categorized as a subsidy, and this can be also be called priority sector lending. However, in recent times, interest subvention clauses are found in loan agreements between related parties or group companies. This has blurred the lines, in terms of how it should be categorized.

Interest subvention for short-term crop loans

The Central Government provides interest subvention to all farmers, for short term crop loan,upto one year, for loan upto Rs. 3 lakh borrowed by them.

Under this scheme, the farmers can avail concessional crop loans of upto Rs.3 lakh at 7 per cent rate of interest. It also provides for an additional subvention of 3 per cent for prompt repayment within a period of one year from the date of advance. The scheme will help farmers to avail short term crop loans up to Rs. 3 lakh payable within one year at only 4 per cent per annum. In case farmers do not repay the short term crop loan in time they would be eligible for interest subvention of 2% as against 5% available above.

The amount of interest subvention will be calculated on the crop loan amount from the date of its disbursement/drawl up to the date of actual repayment of the crop loan by the farmer or up to the due date of repayment of crop loan fixed by the bank whichever is earlier subject to a maximum period of one year.

Interest Subvention would be available only on credit requirement for cultivation of crops and post-harvest loan components under ST limit of KCC. Limit towards household / consumption requirement / maintenance expenses of farm assets, term loan etc. will be outside the purview of the Interest Subvention Scheme.

Interest subvention for post harvest loans

As a measure to check distress sale, post-harvest loans for storage in accredited warehouses against Negotiable Warehouse Receipts (NWRs) are available for upto 6 months for KCC holding small & marginal farmers. The Interest Subvention Scheme will continue for one year and it will be implemented by NABARD and RBI.

In order to give relief to small and marginal farmers who would have to borrow at 9% for the post harvest storage of their produce, the Central Government has approved an interest subvention of 2% i.e an effective interest rate of 7% for loans upto 6 months. Subvention (incentive) for prompt repayment will not be available to the farmers for loans extended against NWRs.

New Modified Interest Subvention Scheme

New subvention scheme Notified on 23.11.2022 vides Notification number RBI/2022-23/139 FIDD.CO.FSD.BC.No.13/05.02.001/2022-23 for FY 2022-23 and 2023-24 with following stipulations:

(i) In order to provide short term crop loans and short term loans for allied activities including animal husbandry, dairy, fisheries, bee keeping etc. upto an overall limit of 3 lakh to farmers through KCC at concessional interest rate during the years 2022-23 and 2023-24, it has been decided to provide interest subvention to lending institutions viz. Public Sector Banks (PSBs) and Private Sector Banks (in respect of loans given by their rural and semi-urban branches only), Small Finance Banks (SFBs) and computerized Primary Agriculture Cooperative Societies (PACS) which have been ceded with Scheduled Commercial Banks (SCBs), on use of their own resources. This interest subvention will be calculated on the loan amount from the date of disbursement/drawl up to the date of actual repayment of the loan by the farmer or up to the due date of the loan fixed by the banks, whichever is earlier, subject to a maximum period of one year. The applicable lending rate to farmers and the rate of interest subvention for the financial years 2022-23 and 2023-24 will be as follows:

(ii) An additional interest subvention of 3% per annum will be provided to such of those farmers repaying in time, i.e., from the date of disbursement of the loan/s up to the actual date of repayment or up to the due date fixed by the banks for repayment of such loan/s, whichever is earlier, subject to a maximum period of one year from the date of disbursement. This also implies that the farmers repaying promptly as above would get short-term crop loans and/or short-term loans for allied activities including animal husbandry, dairy, fisheries, beekeeping, etc.

@ 4% per annum during the financial years 2022-23 and 2023-24. This benefit would not accrue to those farmers who repay their Agri loans after one year of availing of such loans.

(iii) Interest subvention and prompt repayment incentive benefits on short-term crop loans and short-term loans for allied activities will be available on an overall limit of 3 lakh per annum subject to a maximum sub-limit of 2 lakh per farmer in respect of those farmers involved only in activities related to animal husbandry, dairy, fisheries, bee keeping, etc. The limit for crop loan component will take priority for interest subvention and prompt repayment incentive benefits and the residual amount will be considered towards allied activities including animal husbandry, dairy, fisheries, beekeeping, etc. subject to the cap as mentioned above. (Illustrations)

(iv) To discourage distress sales by farmers and to encourage them to store their produce in warehouses, the benefit of interest subvention under KCC will be available to small and marginal farmers for a further period of up to six months post the harvest of the crop against negotiable warehouse receipts on the produce stored in warehouses accredited with Warehousing Development Regulatory Authority (WDRA), at the same rate as applicable to the crop loan.

(v) To provide relief to farmers affected by natural calamities, the applicable rate of interest subvention for that year will be made available to banks for the first year on the restructured loan amount. Such restructured loans will attract a normal rate of interest from the second year onwards.

(vi) However, to provide relief to farmers affected due to severe natural calamities, the applicable rate of interest subvention for that year will be made available to banks for the first three years/entire period (subject to a maximum of five years) on the restructured loan amount. Further, in all such cases, the benefit of prompt repayment incentive @3% per annum shall also be provided to the affected farmers. The grant of such benefit in cases of severe natural calamities shall, however, be decided by a High Level (HLC) based on the recommendations of the Inter-Ministerial Central Team (IMCT) and Sub Committee of the National Executive Committee (SC-NEC).

(vii) To ensure hassle-free benefits to farmers under the ISS, Aadhar linkage would continue to be mandatory for availing the above-mentioned short-term loans in 2022-23 and 2023-24.

(viii) All the above-mentioned short-term loans processed in 2022-23 and 2023-24 are required to be brought on the ISS portal/DBT platform. Lending institutions are advised to capture and submit category-wise data of beneficiaries under the Scheme and report the same on the ISS portal, individual farmer-wise, to settle the audited claims arising from 2022-23 onwards.

Responsibility of Banks and Financial Institutions

All lending banks may submit their eligible pending audited claims of previous scheme years as well as for 2020-21, if any, to us latest by December 31, 2022.

In respect of interest subvention, banks are required to submit their claims on an annual basis duly certified by their Statutory Auditors as true and correct, within a quarter from the close of the year. Any remaining claim pertaining to the disbursements made during the years 2022-23 and 2023-24 and not included in the claim as on March 31 of the corresponding financial year may be consolidated separately and marked as an 'Additional Claim' and submitted latest by June 30, 2024, and June 30, 2025, respectively, duly certified by the Statutory Auditors as true and correct.

In respect of prompt repayment incentive, banks may submit their one-time consolidated claims pertaining to the disbursements made during the years 2022-23 and 2023-24, accompanied by a Statutory Auditors' certificate certifying the claim as true and correct, within a quarter from the close of the financial year. Any remaining claim pertaining to the disbursements made during the years 2022-23 and 2023-24 and repaid promptly during 2023-24 and 2024-25 respectively, may be consolidated separately and marked as an 'Additional Claim' and submitted latest by June 30, 2024, and June 30, 2025, duly certified by the Statutory Auditors as true and correct.

Banks may submit their interest subvention claims relating to post-harvest credit against negotiable warehouse receipts and loans restructured on account of natural calamities/severe natural calamities, separately for each head pertaining to the disbursements made during the year, duly certified by the Statutory Auditors as true and correct.

The claims in respect of computerized PACS ceded with SCBs may be submitted separately by the respective banks with the certification that interest subvention/prompt repayment incentive is being claimed on loans for which no refinance has been availed of from NABARD, duly certified by the banks' Statutory Auditors.

Points to keep in mind during audit and certification

• In respect of interest subvention, banks are required to submit their claims on an annual basis duly certified by their Statutory Auditors as true and correct, within a quarter from the close of the year.
• Any remaining claim pertaining to the disbursements made during the years 2022-23 and 2023-24 and not included in the claim as on March 31 of the corresponding financial year may be consolidated separately and marked as an 'Additional Claim' and submitted latest by June 30, 2024, and June 30, 2025, respectively, duly certified by the Statutory Auditors as true and correct.
• In respect of prompt repayment incentive, banks may submit their one-time consolidated claims pertaining to the disbursements made during the years 2022-23 and 2023-24, accompanied by a Statutory Auditors' certificate certifying the claim as true and correct, within a quarter from the close of the financial year.
• This modified notification is applicable only for a short-duration crop not for Long duration crop. Other allied activity covers animal husbandry, dairy, fisheries, bee keeping, etc.
• The limit for Interest subvention is up to an overall limit of Rs 3.00 Lakh to farmers through KCC. Priority of Interest subvention will give to crop loans and than the rest to allied activity loans (which is a maximum limit of 2.00 Lakh).
• This interest subvention is calculated on the loan amount from the date of disbursement /drawl up to the date of actual repayment of the loan by the farmer or Up to the due date of the loan fixed by the banks whichever is earlier subject to maximum period of one year.
• The rate of Interest subvention has been reduced to 1.5% which was 2% earlier and the additional incentive subvention rate for only Prompt payment has been increased to 4% which was earlier 3%.

For better understanding the notification take some examples

Disclaimer: These are the author's personal views and cannot be construed to be the views of the ICAI. It shall not be used for any legal advice/opinion and shall not be used to render any professional opinion/advice. The information contained in the article is for the purpose of spreading information/knowledge/ awareness and shall not be treated as a solicitation in any manner or for any other purpose.

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