Kisan Credit Card: Government may take a major decision regarding KCC interest subvention..

The government is in talks with banks to reduce the interest subvention rate on Kisan Credit Card (KCC) loans by 50 basis points, a move driven by the reduction in policy rates. Since February 2025, the Reserve Bank of India (RBI) has gradually lowered the repo rate by 125 basis points to 5.25 percent. A basis point is one-hundredth of a percentage point. The government aims to ensure that the lower policy rates are reflected in the interest benefits provided under the ‘Modified Interest Subvention Scheme’ (MISS-KCC) for Kisan Credit Cards. Currently, the government provides a 1.5 percent interest subvention (or financial subsidy) to banks, enabling them to offer short-term KCC loans of up to ₹3 lakh at a lower interest rate of 7 percent. The government is engaged in preliminary discussions with banks and is working towards extending the MISS-KCC scheme until 2031-32.

**Scheme likely to be extended until 2031**
According to an ET report citing two officials familiar with the matter, discussions with banks are in the early stages and form part of broader policy measures to continue the MISS-KCC scheme through 2031-32. In May 2025, the government had extended the scheme for the 2025-26 fiscal year while maintaining the existing 1.5 percent interest subvention. Speaking on condition of anonymity, an official stated that the government believes the MCLR (Marginal Cost of Funds-based Lending Rate) has declined due to interest rate cuts, and banks are now in a position to absorb the burden of the 50-basis-point (bps) reduction proposed by the government.

**Allocation of ₹22,600 crore**
However, the Ministry of Finance has not yet issued a statement regarding this matter. A recent report indicates that the total estimated subsidy expenditure for this scheme, spanning from its inception in 2006-07 through 2024-25, stands at ₹1.87 lakh crore. The budget for the 2026-27 fiscal year has allocated ₹22,600 crore for this scheme, an amount unchanged from the previous fiscal year. Farmers who repay their loans on time receive an additional interest benefit of up to 3% as an incentive for timely repayment, effectively reducing the interest rate to just 4%.

**Requirement for Manpower**
Banks argue that despite the subsidy, the interest income generated from KCC loans remains below their base rate. Another bank official noted that KCC loans are primarily disbursed in rural areas—a process requiring significant manpower—and these factors must be taken into account. An official stated that banks would maintain the interest rate at 7% due to lowered policy rates; furthermore, any changes to the subsidy rate would not be passed on to the farmer borrowers.

A CareEdge Ratings report from July highlighted sustained strength in credit expansion within the Indian banking system during 2025-26, with scheduled commercial banks recording a year-on-year credit growth of approximately 14.5%. According to the report, monetary easing and surplus liquidity facilitated lower lending rates and improved transmission, thereby boosting the demand for credit.

Disclaimer: This content has been sourced and edited from TV9. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.