Farmers will continue to get short-term loan of up to Rs 3 lakh at a subsidised interest rate of 7 per cent, and prompt repayers will get it at 4 per cent as the government has extended the subsidy to banks for 2017-18.

The Interest Subvention Scheme for 2017-18 was approved at the Cabinet meeting today headed by Prime Minister Narendra Modi.

The Government has earmarked a sum of Rs 20,339 crore for this purpose. According to a release by the Cabinet, the move will help farmers getting short term crop loans up to Rs. 3 lakh payable within one year at only 4 per cent per annum.

The interest subvention will be given to public sector banks (PSBs), private sector banks, cooperative banks and regional rural banks (RRBs) on use of own funds and to Nabard for refinance to RRBs and cooperative banks, the release added.

The scheme will continue for one year and it will be implemented by Nabard and RBI.

"The objective of the scheme is to make available at ground level, agricultural credit for short-term crop loans at an affordable rate to give a boost to agricultural productivity and production in the country," the Centre added.

As an interim measure, the Reserve Bank had last month asked the banks to continue giving the discount on interest on short-term crop loans during the current fiscal.

The Cabinet decision to continue the interest subvention comes at a time when there are farmers protest in several parts of the country, more particularly in Madhya Pradesh, demanding farm loan waiver. Uttar Pradesh and Maharashtra have already announced such waiver.

Under the scheme, a subvention of 2 per cent per annum is provided for short-term crop loans of up to Rs 3,00,000 per farmer, provided the lending institutions make available short-term credit at the ground level at 7 per cent per annum to farmers.

An additional interest subvention of 3 per cent per annum is available to the “prompt payee farmers“.

For 2017-18, farm credit target has been raised to Rs 10 lakh crore from Rs 9 lakh crore in 2016-17.