Govt discusses 50 bps cut in Kisan Credit Card interest subvention

The government is in preliminary discussions with banks to reduce the interest subvention on Kisan Credit Card (KCC) loans by 50 basis points, the Economic Times reports. The move is intended to align the subsidy with recent policy rate cuts by the Reserve Bank of India, which has reduced the repo rate by 125 basis points to 5.25% since February 2025. Banks currently receive a 1.5% subvention to offer short-term KCC loans up to Rs 3 lakh at a 7% interest rate.

The discussions are part of broader plans to extend the Modified Interest Subvention Scheme through the Kisan Credit Card (MISS-KCC) until 2031-32. In May 2025, the government extended the scheme for 2025-26 with the existing 1.5% subvention. Bank executives told the Economic Times that the marginal cost of funds-based lending rate has fallen with rate cuts, and banks may absorb the reduction. Banks argued that their interest income on KCC remains below their base rate even with the subvention.

Farmers who repay promptly will continue to receive an additional benefit of up to three percentage points, bringing the effective rate to 4%. Bank executives said any change in the subvention rate will not be passed on to borrowers, and the interest rate will stay at 7%. The scheme's total subsidy outlay is estimated at Rs 1.87 lakh crore since its launch in 2006-07. The budget for 2026-27 allocates Rs 22,600 crore for the scheme.