June 05, 2006
All Public Sector Banks/Regional Rural Banks
Dear Sir,
Union Budget – 2006-07 – Proposal for ensuring
Short Term Credit to Farmers at the interest rate of 7% p.a.
As you are aware, the Hon’ble Finance Minister,
in his Budget Speech (paragraph 49) for 2006-07 had announced as follows :
"Government has decided to ensure that
the farmer receives short term credit at 7 per cent, with an upper limit of
Rs.3,00,000 on the principal amount. This would require a certain level of subvention
to NABARD. I propose to give the subvention. This policy will come into force
with effect from Kharif 2006-07."
2. In pursuance of this announcement, Government
will provide interest subvention of 2% p.a. to Public Sector Banks and Regional
Rural Banks in respect of short-term production credit up to Rs.3 lakh provided
to farmers. This amount of subvention will be calculated on the amount of the
crop loan disbursed from the date of disbursement/drawal up to the date of payment
or up to the date beyond which the outstanding loan becomes overdue i.e. March
31, 2007 for Kharif and June 30, 2007 for Rabi, respectively, whichever is earlier.
This subvention will be available to Public Sector Banks and Regional Rural
Banks on the condition that they make available short-term credit at ground
level at 7% p.a. In case of RRBs, this will be applicable only to short term
production credit disbursed out of their own funds and will exclude such credit
supported by NABARD refinance. As regards the rate of interest applicable on
NABARD refinance to RRBs, a separate circular is being issued by NABARD.
3. Banks are advised to immediately, provide
their estimates of short-term production credit to farmers up to Rs.3 lakh for
Kharif and Rabi 2006-07 (separately) to enable us to provide Government with
an estimate of the likely amount of subvention.
4. Banks are also advised as under :-
i. In order to enable Government to provide
subvention, banks are required to submit their claims on a quarterly basis as
at June 30, 2006, September 30, 2006, December 31, 2006 and March 31, 2007,
within one month from the end of the respective quarter. The format for the
purpose is enclosed.
ii. The claim for the quarter ending March 31,
2007 should enclose a Statutory Auditor’s certificate certifying that the claims
for subvention of Rs._________(amounts claimed for each of the quarters to be
specified) for the quarters ending June 30, 2006, September 30, 2006, December
31, 2006 and March 31, 2007 are true and correct.
iii. Claims may be submitted to the Chief General
Manager-in-Charge, Rural Planning and Credit Department, Reserve Bank of India,
Central Office, Shahid Bhagat Singh Road, Fort, Mumbai – 400 001.
Yours faithfully,
( Smt. R. Sebastian)
General Manager