After the Rs 65,000-crore farm loan waiver last year, a fresh bounty is in the offing for farmers. The government proposes to reward farmers who repay their loans on time by offering them fresh credit at reduced rate.

“We are proposing a 6 per cent rate of interest for farmers who repay their crop loan on time,” an official in the finance ministry told Financial Chronicle.

The announcement, likely to be made in the budget on July 6, may also bring good news for farmers who are willing to retire their high cost loans (such as from moneylenders) to avail crop loans from banks. The Congress in its manifesto had said it would extend the interest relief to all farmers who repay their loans on time.

At present, the government gives a three per cent interest subsidy on short-term loans of up to Rs 3 lakh, with farmers getting the loan at 7 per cent. The new rate of 6 per cent will only be applicable to those with an annual income of less than Rs 5 lakh.

It is not yet clear whether the burden of one per cent reduction in interest rate would be borne by the government or the banks. The scheduled commercial banks and the National Bank for Agriculture and Rural Development are of the view that the rate cut should come in the form of subsidy, otherwise they would not be able to meet their expenses while servicing the loans.