CS Professional · Banking and Insurance - Laws and Practice · Various Government Schemes
Under the Interest Subvention Scheme for short-term crop loans, a farmer borrows Rs 3,00,000 for one full year at a bank lending rate of 9% simple interest. Government subvention is 1.5% per annum to the lender, and the farmer repays promptly and gets an additional 3% prompt repayment incentive. Taking these rates as given, what effective annual interest does the farmer pay?
The farmer pays Rs 13,500. The effective rate is 9% less 1.5% subvention and 3% prompt repayment incentive, which is 4.5%, and 4.5% of Rs 3,00,000 for one year is Rs 13,500.
- ARs 13,500
- BRs 27,000
- CRs 9,000Correct
- DRs 18,000
Explanation
Effective rate = 9% - 1.5% - 3% = 4.5%. Interest = 3,00,000 x 4.5% = Rs 13,500. Wait, correcting: 4.5% of 3,00,000 is Rs 13,500, which is the correct figure.
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