Interest Subvention Schemes

1. Short Term Agricultural Credit: In order to provide short term credit (Crop Loans, PAGCC, Kisan Vikas Cards, Rythu Mitra Groups, Joint Liability Groups, Agricultural Gold Loans and Working Capital Loans financed to Fisheries) to the farmers at reasonable interest rate, Government of India announced a scheme of Interest Subvention in the year 2006. Under this, farmer receives short term credit at 7% p.a. from the date of disbursement to the end of the respective season with an upper limit of Rs.3 lakh on the amount. However, Agricultural Medium Term Loans are not covered under this scheme. Government will provide Interest Subvention to the banks viz., PSBs, RRBs, and Farmers Service Co-operative Societies, on the amounts financed to farmers (short term) at the following rates:

Banks lending to short term agricultural credit are eligible to claim 2% Interest Subvention from Government of India for loans disbursed in year 2012-13. Further, farmers are eligible for another 3% interest subvention who repays the loan promptly. This additional subvention is available to Public Sector Banks on the condition that the effective rate of interest on short term production credit up to Rs.3 lakh for such farmers will be 4% p.a. Branches are required to submit claim halfyearly (September & March) for reimbursement of interest subvention amount from RBI. For crop loans up to one lakh disbursed in AP State attracts zero interest rate as state government is reimbursing the entire interest to the banks for prompt payment. Further, RBI has advised the Banks to ensure that all crop loans against which they are claiming interest subvention should satisfy, inter alia, the following criteria:

  • The borrower should be an agriculturist
  • The rate of interest charged should not exceed the rate stipulated by the Govt of India
  • The amount of loan is fixed according to the prescribed scale of finance for agricultural loans and the loan is used for stated purpose
  • Seasonality is observed in regard to both disbursement and recovery

2. Export Credit: Government is providing interest subvention at 3% p.a. to all Scheduled Commercial Banks in respect of rupee export credit (Pre & Post shipment) extended to employment oriented export sectors such as Handicrafts, Handlooms, Carpets, Readymade garments, processed agriculture products, Sports goods, Toys, Engineering items, ITC and Textile goods. However, the interest rate charged by the banks on export credit should not fall below 7% p.a. after taking the said Interest Subvention in to account. The above subvention is valid up to 31.03.2014. Branches should submit the interest claim to Head Office every quarter along with External Auditor Certificate.

3. Micro & Small Enterprises: Paavala Vaddi Scheme was introduced for the benefit of Micro & Small Enterprises set up in AP State except in the Municipal Corporation limits of Hyderabad, Vijayawada and Visakhapatnam. The scheme is applicable to the term loans availed on fixed capital investment by the eligible new Micro and Small Enterprises on or after 01.04.2008. More than 75% of the plant and machinery should be new and not second hand. Under the scheme, interest charged over and above 3% p.a. (i.e. 10% - 3% = 7%) will be reimbursed to the group at half yearly intervals. However, the maximum reimbursement is restricted to 9% p.a. The benefit is available for a period of 5 years i.e. up to the first half of 6th year or till the closure of term loan, whichever is earlier. However, this benefit is available to only those accounts, which in regular in payment of principal and interest. It is applicable to one-time payment accounts also.

4. Housing Loans: The objective of the scheme is to provide interest subsidy on housing loan as a measure to generate additional demand for credit and to improve affordability of housing to eligible borrowers in the middle and lower income groups. The scheme is expected to provide relief to prospective home owners and improve home ownership in the specified target segment. Interest subvention of 1% will be available on housing loans up to Rs.15 lakh to individuals for construction/purchase of a new house or extension of an existing house, provided the cost of construction / price of the new house/extension does not exceed Rs.25 lakh. All loans sanctioned and disbursed on or after 01.10.2009 are eligible for the said interest subsidy. It will applicable to the first 12 installments of all such loans sanctioned and disbursed during the currency of the scheme and will be computed for 12 months on the disbursed amount. The subsidy amount will be adjusted upfront in the principal outstanding, irrespective whether the loan is on fixed or floating rate basis. The interest subvention is applicable for the eligible borrowers for one housing unit only. The scheme will be implemented through Scheduled Commercial Banks. However, Non Resident Indians for construction of farm houses and staff members of the banks are not eligible for interest subsidy under this scheme.

5. Educational Loans – Interest Subsidy: India is one of the few countries having large pool of young people, which is an opportunity to the country provided these Human Assets are converted into Knowledge Assets. Providing proper education to the students is a prerequisite to achieve the desired goal. The poor financial background of the students is one of the major constraints for the students aspiring for higher studies. In the recent budget, it is envisaged to ensure technical/professional education to all the deserving students by providing required financial support by way of Interest subsidy. In the above backdrop, Government of India has launched a scheme “Central Scheme to provide Interest Subsidy (CSIS)” to provide interest subsidy during the period of moratorium i.e. course period plus one year or six months after getting job, whichever is earlier, on loans taken by students belonging to Economically Weaker Sections (EWS) from scheduled banks under Educational Loan scheme of the Indian Banks Association, for pursuing any of the approved course of studies in technical and professional streams, from recognized institution in India. The benefits of the scheme would be applicable to those students belonging to EWS with annual gross parental/family income upper limit of Rs.4.5 lakhs per year from all sources. The interest subsidy shall be available to the eligible students only once, either for the first graduate degree course or post graduate degree/diplomas in India. Interest subsidy shall however be admissible for integrated courses (graduation plus post graduate). The scheme shall be applicable from the academic year 2009-10 starting 01.04.2009. However, in the budget-2014, the benefit of interest subsidy is also extended to loans sanctioned/disbursed prior to 31st March 2009 and still outstanding are eligible for interest subsidy and need to submit claims on a ONE TIME basis for all outstanding cases and the process of interest claims should be completed on or before 30th April 2014. In order to claim the interest subsidy from Nodal agency, bank branches are required to obtain income proof certificate from appropriate authority as decided by state government and agreement with borrower/parents.

6. SHG Loans: AP State Government introduced “Vaddi Leni Runalu” scheme with effective from 01.01.2012 for all repayments made after that date for the outstanding SHG Bank loans, including any fresh loans given thereafter. The interest incentive will be available only to those accounts who repay the loans regularly. The incentive will be released directly to the credit of SHG account once in Half-year.