Move follows opposition from manufacturers, politicians, farm lobby
The circular attracted unexpected negative reactions and was getting controversial; we decided to drop it…. It is pointless to push it – SBI official
Mumbai/New Delhi: State Bank of India has decided to resume tractor and farm equipment loans, reversing its decision of just five days ago. The sudden rollback of a commercial decision has given rise to speculation that the bank has acted under pressure.
The bank’s decision to suspend tractor loans, which became public only a couple of days ago, was severely opposed by tractor manufacturers, politicians and the farm lobby.
In a brief note released to the press on Wednesday, Mr O.P. Bhatt, SBI Chairman, said: “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 The circular is withdrawn with immediate effect.”
A senior SBI official said “as the circular attracted unexpected negative reactions and was getting controversial, we decided to drop it…. It is pointless to push it.”
Yet only a day earlier, on Tuesday, Mr Bhatt had been explaining the rationale for the suspension.
On Tuesday, a note from the Chairman said the government‘s debt waiver scheme provides for relief in the case of farm equipment loans to the extent of 25 per cent if the farmer brings in 75 per cent of the loan outstanding.
“We have pockets in the country where there are large overdues in tractor loans. It is our attempt to sensitise our branches across the country to help the farmers to take advantage of the government’s scheme and to reduce NPAs for the bank.” the statement said.
The bank has been facing high default rates in tractor loans in the past two years. “We had stepped up the recovery mechanism. Now we thought it better to give the farmers an opportunity to take advantage of the debt recovery scheme,’ the official said.
However, banking sources believe that SBI had acted on orders from New Delhi.
According to analysts, with the withdrawal of the circular, technically the bank may not stop lending for farm equipment, but it will tighten lending norms and apply stricter due diligence on borrowers.
More than 15 per cent of the Rs 7,000-crore outstanding tractor loans are in the NPA-category and that had prompted SBI to put on hold such loans.
POLITICAL PRESSURE
Covert political pressure seems to be behind the move by SBI to withdraw the internal circular suspending new loans for buying tractors and other farm equipment.
According to political sources in the Capital, the Minister for Parliamentary Affairs, Mr Vayalar Ravi, was among the first to shoot off a letter to the Congress President, Ms Sonia Gandhi, protesting against the SBI move.
Mr Ravi’s intervention came in his capacity as the party observer for Karnataka elections.
According to the sources, the BJP had made a big issue of the SBI circular on Tuesday, the last day of campaigning in Karnataka, holding this up as proof of Congress party’s anti-farmer stance.
Mr Ravi is also understood to have pleaded with his party President to nudge the Finance Minister, Mr P. Chidambaram, to act immediately and get the circular withdrawn.
Publicly, however, the Congress party maintained that it had not intervened in this matter.
This, the sources said, was to give out the message that the party did not interfere in the functioning of the Government.
There were also some suggestions that the Prime Minister’s Office informally conveyed to the Finance Ministry that it was “wrong timing” for the SBI circular to have come out.
The Finance Ministry had no official comments to offer on this issue.
