Interest Subvention Scheme Monitoring of end-use of Crop Loans

In various regions, bank have failed to ensure end-use of funds disbursed ostensibly as crop loans. As a consequence, the expenditure incurred by the Government of India with an intention to help small and marginal farmers has not, to a significant extent, reached the intended beneficiaries. There have been some reports that the ‘borrowers’ of these ‘crop loans’ have diverted the funds and are, to some extent, using the scheme as an arbitrage opportunity by borrowing at a lower rate of interest owing to the subvention available and investing them in fixed deposits and/or in
other investment avenues at higher rate(s) of interest.

Banks are, therefore, advised to strengthen their systems for pre-sanction scrutiny and post-disbursement supervision and also consider carrying out post-disbursement audits to ensure that all crop loans for which interest subvention is being claimed are being used for the stated purpose and that there is no diversion of funds. Banks should not claim any interest subvention for loans not meeting the above criteria as these will not be treated as ‘agricultural’ loans.

To view the full text of the circular, please follow the link

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