Public sector banks would be receiving interest subvention of 1.5% per annum from the Government of India pertaining to short term credit of upto Rs 3 lakh which they would grant to farmers as per Budget 2010-11.

"In the last budget, I had provided an additional one per cent interest subvention as an incentive to those farmers who repay their short-term crop loans as per schedule. I propose to raise this subvention for timely repayment of crop loans from one per cent to two per cent for 2010-11. Thus, the effective rate of interest for such farmers will now be five per cent per annum," the finance minister had said while presenting the budget.

RBI notification says that public sector banks will receive interest subvention on condition that they grant short term farm loans upto Rs 3 lakh at 7% rate of interest per annum.

An estimate of the credit amount has been asked to be presented to the RBI immediately. RBI has directed that the estimate be a realistic one.