The bank targets lending up to 100,000 baht each to 100,000 farmers and over 100,000 baht to the other 50,000 farmers, said president Luck Wajananawat.
The loan duration will be 10-12 years. The bank's fiscal year runs from April 1 through March 31.
The National Council for Peace and Order instructed the farm bank to help eradicate loan shark problems in rural areas, particularly for farmers, while the Government Savings Bank will take responsibility for providing financial assistance to street vendors.
The junta also plans to pass a law regulating debt collection to protect both debtors and creditors.
The country's household debt surged to 82.3% of GDP at the end of last year from 77.3% in 2012, boosted by the Yingluck Shinawatra government's first-time car buyer scheme. Low-income earners were warned to be careful not to spend more than they earned.
However, Fitch Ratings said the pace of the household debt load would slow down this year due to tepid economic growth and banks' prudent loan extensions.
Mr Luck said the BAAC would forward the names of farmers failing to meet the bank's lending criteria due to inadequate income or collateral to the Agriculture Ministry's revolving fund for farmers and the poor.
The fund has already extended 233 million baht to 800 borrowers. It has 200 million baht left for loans after lending 1.8 billion.
Under the Abhisit Vejjajiva government, 1.2 million people owed money to loan sharks and registered for state assistance. Half are farmers, with 340,000 of them in dire need of help.
The debt for 270,000 of the 340,000 needy farmers has been restructured and that for the remaining 70,000 forwarded to the Agriculture Ministry's revolving fund.