The Government has raised the interest assistance provided to the public sector banks by one per cent to three per cent for up to Rs 3 lakh short-term crop loans to agriculturalists for this fiscal in order to incentivise the credit flow to farmers. The amount of subvention is to be calculated on the amount of the crop loan disbursed from the date of disbursement or drawal, up to the date of repayment or up to the date beyond which the outstanding loan becomes overdue, whichever is earlier.
 
This subvention is available to the banks on the condition that they make available short-term credit at the ground level at 7% per annum. This implies that farmers will get loans at 7% rate of interest, but the banks will get 3% interest from the government on the loans disbursed, so that the excess costs of funds are absorbed by the government. The Finance Minister, in his budget speech for 2008-09, had said, “Short-term crop-loans will continue to be disbursed at seven per cent per annum and I am making an initial provision of Rs 1,600 crore for interest subvention in 2008-09.”
 
The increased subvention will also be applicable to cooperative banks and regional rural banks.