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Mumbai, May 19 State Bank of India, the largest bank in the country, has suspended new loans for buying tractors and other farm equipment.

The sudden decision, which according to SBI officials was prompted by the rising bad loans, has surprised tractor makers and the farm lobby.

“Our tractor loans now amount to around Rs 7,000 crore and 15 per cent of which has become NPAs”, said a senior SBI official.

The bank had issued circulars to all branches last week asking them to stop new loans to purchase tractors with immediate effect. The bank is planning a special recovery drive, for which they will also involve tractor manufacturers, said the official in charge of rural business.

“Our aim is not to deprive funds to buy tractors. On the other hand, our priority is to help genuinely distressed farmers. But there are wilful defaulters in some pockets. We want to tackle that,” said Mr Anup Banerji, Deputy Managing Director, Agri & Rural Business, SBI.

“This is a temporary measure. We hope to see some improvement in the recovery by June, after which we will resume lending to this segment,” said another SBI official.

Bankers are not sure whether all tractor loans would come under the government’s farm loan waiver scheme. Under the farm debt waiver scheme announced in the Union Budget, there is a provision for a one-time settlement under which the government will pay 25 per cent of the loan, and the farmer will have to pay 75 per cent of the loan. “We are guessing that the farmers who avail themselves of tractor loans may not be small and marginal farmers who are eligible for full loan waiver. However, they can take advantage of the one time settlement. Yet, we are not sure,” the official said.

An official with a leading tractor manufacturer said that the tie-up with SBI has been working well.

There has been drop in sales, which was due to genuine slowdown in demand.

SBI saw a growth of 24.6 per cent in agricultural advances for the fiscal 2007-08.

For tractor financing, SBI has agreements with almost all major companies such as TAFE Ltd, Mahindra & Mahindra, and Sonalika Group, said an SBI official and the average ticket size of a tractor loan is about Rs 4 lakh.

More Stories on : Public Sector Banks | Farm credit | State Bank of India

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