SBI announced reduced interest rates for irrigation and crop loans

State Bank of India country’s largest lender has announced cut on interest rates of irrigation and crop loans to reduce the impact of a drought which can block burgeon economic recovery.

In India only 42% of agricultural land is irrigated, this year is facing the worst dry spell in more than two decades, and more than a third of the country's 625 administered districts have declared drought in their areas.

The effect of dry conditions can be seen on other things, in rural areas, which consists of more than 60% of the country's 1.2 billion population the demand for everything can come down from motorcycles to cell phones.

The government is urging state-run banks to appease farm loans and support irrigation in order to avoid decline in farm output, which would reflect on economic growth.

Niranjan Parsha, general manager of SBI's agriculture business unit, in an interview told Dow Jones Newswires, "Though the monsoon has now revived, this (lower interest rates) will help provide a further fillip to agri lending, which should start picking up from this month".

SBI stated in a statement for new minor irrigation loans of up to 2.5 million rupees ($51,125), the bank will be charging an interest rate of 8% in the first year and 9% for the second and third year.

At present on such loans bank is offering from 10.50% to 13.25%.

Moreover on loans provided for crops, on more than 300,000 rupees to 2.5 million rupees the bank has reduced the interest rate to 10% for one year from the existing 11.75% to 12.75%

Bank will offer the reduced rates for the summer-sown and winter-sown crop seasons up to March 2010.

Mr Parsha informed at present bank’s agriculture loan book accounts to 570 billion rupees and aims to increase it by 158 billion rupees in the remaining part of the fiscal year ending March 31, 2010.

Bank has also reduced the loan processing charges and has extended the repayment period by a year for new loans for the farmers.