On Thursday, the Reserve Bank of India (RBI) notified banks with regard to the two percent subsidy or subvention for short term crop loans during 2018-19 and 2019-20. The Central Government had approved this scheme earlier.

RBI said that to provide short term crop loans up to Rs 3 lakh to farmers at an interest rate of 7 percent, the central bank has decided to give an interest subvention of 2 percent per annum to these financial institutions.

"This interest subvention of 2 per cent will be calculated on the crop loan amount from the date of its disbursement/drawal up to the date of actual repayment of the crop loan by the farmer or up to the due date of the loan fixed by the banks whichever is earlier, subject to a maximum period of one year," its notification said.

The scheme allows an additional interest subvention of 3 percent to farmers that repay loans promptly. Effectively, the interest rate for such farmers would be 4 percent per annum after a total interest subvention of 5 percent.