SBI withdraws freeze on tractor loans

The State Bank of India on Wednesday withdrew its circular freezing loans for buying farm equipment like tractors.

"We regret that our circular dated 16th May, 2008 concerning tractor loans has been misunderstood and has given rise to concern. The circular is withdrawn with immediate effect," SBI chairman O P Bhatt said in a statement on Wednesday.

In the circular, SBI had asked its branch managers not to sanction loans to farmers for purchasing equipment like tractors, combined harvesters and power tillers as nonperforming assets in this segment of farm loans have risen to 17%.

Loans given by the bank under this segment amounted to Rs 7,000 crore out of a total lending of Rs 43,000 crore to the farm sector.

SBI was under tremendous pressure once the contents of the circular came out in the open. The temporary freeze on loans for farm tools at this time of the year, when agricultural activities are in full swing, would have affected the farmers badly.

The finance ministry is believed to have been unhappy with SBI’s circular as it would have dented the government’s attempts to ease the credit burden on farmers through its farm loan waiver exercise.

Government was also under pressure from Congress and its UPA allies to impress upon SBI to withdraw the circular. FM’s office played a key role in persuading the bank to rescind its controversial order.

SBI’s joint MD Anup Banerjee said the bank was not averse to giving loan to farmers, but as nonperforming assets were mounting in this segment, it had decided to temporarily discontinue giving loans for purchase of farm equipment.

He said SBI would educate the farmers to make use of the government’s farm loan waiver scheme to return bank loans. This, he said, would enable defaulting farmers to get of fresh loans. Banerjee said, this would make banks comfortable in giving fresh loans to farmers.