The headline KCC interest rate is not what most farmers actually pay. This guide breaks down the nominal rate, the government subvention, and the prompt-repayment incentive that together reduce the effective cost.
Quick Answer
The nominal KCC rate is about 7% on loans up to ₹3 lakh, but a 2% government subvention plus a 3% Prompt Repayment Incentive (PRI) cut the effective rate to ~4% for farmers who repay on time.
How the Rate Is Built
| Component | Effect |
|---|---|
| Base interest | ~7% p.a. (up to ₹3 lakh) |
| Interest Subvention | −2% (to the bank) |
| Prompt Repayment Incentive | −3% (for timely repayment) |
| Effective rate | ~4% |
Above ₹3 Lakh
For limits above ₹3 lakh, the rate is linked to the bank's RLLR/MCLR plus a spread, and the subvention benefit may not apply to the excess amount.
Losing the 4% Rate
If you do not repay within the stipulated period, you lose the 3% incentive and pay the full ~7% (or higher penal rate).
Disclaimer: Subvention rates and thresholds are set by the Government of India/RBI and change periodically. This guide is educational only.
Conclusion
The KCC's real advantage is the ~4% effective rate — but only for prompt repayers. Repay on time to keep the incentive and your credit cost low.
Frequently asked questions
What is the effective KCC interest rate?
About 4% for loans up to ₹3 lakh when you repay on time, thanks to a 2% subvention plus a 3% prompt-repayment incentive.
What is the nominal KCC interest rate?
Around 7% per annum on the subvented slab before incentives.
Do I lose the low rate if I repay late?
Yes. Late repayment forfeits the 3% incentive, so you pay the full rate (or penal interest).
Is the subvention available above ₹3 lakh?
The subvention generally applies up to ₹3 lakh; amounts above that are priced at the bank's normal lending rate.
Who pays the 2% subvention?
The Government of India pays it to the lending bank so the farmer's rate stays low.