Kisan Credit Card Loans: Government Discusses 50 Basis Points Cut in Interest Subvention with Banks

As per an Economic Times news report, the government is in talks with banks to reduce the interest subvention on Kisan Credit Card (KCC) loans by 50 basis points, as per The Economic Times news report. The talks are still at an early stage. 

The proposal comes after a series of cuts in the Reserve Bank of India's (RBI) repo rate. Since February 2025, the central bank has reduced the policy rate by 125 basis points in stages to 5.25%. 

Current KCC Interest Rate 

Under the Modified Interest Subvention Scheme for Kisan Credit Cards (MISS-KCC), the government currently provides banks with a 1.5% interest subvention on short-term KCC loans of up to ₹3 lakh. 

The support allows banks to provide these loans at an interest rate of 7%. Farmers who repay their loans on time can receive a prompt repayment incentive of up to 3 percentage points. 

This incentive can bring the effective interest rate for eligible farmers down to 4%. 

Banks' Cost Concerns 

The government is of the view that lower lending costs following the repo rate cuts give banks room to absorb the proposed 50-basis-point reduction in subvention. 

Banks, however, have said that their interest income from KCC loans is already below their base rate despite the existing support. They have also cited the cost of servicing loans in rural areas, including the staff required for such operations. 

One bank executive said lenders would continue charging farmers 7% even if the subvention is changed, meaning the reduction may not be passed on to borrowers. 

Scheme Extension 

The discussions are also linked to the government's plan to continue MISS-KCC until 2031-32. The scheme was extended for 2025-26 in May 2025, with the existing 1.5% subvention retained. 

The scheme's subsidy outlay was estimated at ₹1.87 lakh crore up to 2024-25 since its launch in 2006-07. The 2026-27 Budget allocated ₹22,600 crore, the same as in the previous financial year. 

Banking Sector 

CareEdge Ratings noted that scheduled commercial banks recorded credit growth of about 14.5% year-on-year in 2025-26. It also said monetary easing and surplus liquidity had contributed to lower lending rates. 

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Conclusion 

Talks between the government and banks on the proposed 50-basis-point reduction are at a preliminary stage. The existing 1.5% subvention remains unchanged. 

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