Facing criticism from political, industrial & banking circles, State Bank of India (SBI) has withdrawn a circular that instructed its branches to suspend credit for tractor purchases.
?We regret that our circular dated May 16, 2008 concerning tractor loans has been misunderstood and has given rise to concerns. The circular is withdrawn with immediate effect,?? said a note from the SBI chairman?s office.
Speaking to FE, a top SBI official said, ?The circular was interpreted as if the bank has stopped credit to the farm sector, which is not the case. The purpose of the circular was to make the distressed farmers avail of the facilities under the debt waiver scheme as announced by the finance minister in his Budget speech and pay back the existing loan and be eligible for a fresh loan.??
However, he denied any specific instructions from the ministry of finance to withdraw the circular. ?We are aware of the sensitive area the circular was focusing. Though the circular was there, no new customers would have been denied any tractor loan,?? said the official.
Sources in the SBI group said the ban on tractor loans could have been implemented selectively in some areas rather than making it across the board. ?It?s not as if all centres have seen 17% NPA on tractor loans. The bank would have implemented the ban only in those high NPA centers,? said the source.
Other banks had not resorted to such stringent measures like SBI, as their exposure to the sector is very small. SBI, India?s largest bank, disburses tractor loans through its 7,000 branches located in semi-urban and rural areas. Sources point out that the country?s second largest bank, ICICI Bank, has also slowed down credit exposure to the tractor segment after running up a comparatively higher rate of sticky assets from the segment. However, an ICICI Bank official denied the development, saying the bank?s tractor loan portfolio is running smoothly.
SBI further said the government wants farmers to avail of the Debt Waiver & Relief scheme. The scheme provides for debt relief in farm equipment loans to the extent of 25% if the farmer brings in 75% of the loan outstanding.
In the past year, SBI?s non-performing loans in the agriculture sector have risen significantly. ?We have pockets in the country where a large number of tractor loan repayments is overdue. It is our attempt to sensitise our branches across the country to help the farmers to take advantage of the government?s scheme,? the SBI official said.