In what could prove detrimental to the agriculture industry, the country's largest state-owned bank, State Bank of India, has decided to stop giving loans for the purchase of tractors and other farm equipments. This could prove a big blow to the government which is going all out to project a "pro-farmer" image, promising a Rs 60,000 crore waiver on farm loans and talking big on boosting agricultural credit.

The bank sent a circular to all its branches, asking them to put on hold all future advances for farm equipment like tractors, power tillers and combined harvesters because of mounting non-performing assets (NPAs) in the farm equipment loan sector.

SBI chief general manager Shyamal Acharya, who is also in charge of the bank's agri-business, confirmed that the bank has "temporarily discontinued" giving loans to farmers for the purchase of equipments and said that the decision was forced by the high increase in the nonperforming assets (NPAs) in the segment.

Stating that the NPAs under this segment had gone up to 17% of the total amount of Rs 7,000 crore, Acharya said that such a high level of NPAs was not sustainable.

The bank has also asked its branch heads to be in touch with tractor dealers to contact the defaulting farmers and ask them to avail themselves of the loan waiver scheme.

The bank believes that this step will help reduce its NPAs, because once the loan is included under the waiver scheme, the government will foot the bill. While refusing to talk on that, Acharya said that the bank would concentrate on improving the recovery of loans. Once that is achieved, he said, the department would review its decision and that could happen by the first week of July.

However, this decision of the SBI has found few takers. The experts feel that the decision to stop loans to purchase tractors and power tillers at this time will hurt farmers badly as it corresponds to the time when they till the land to prepare it for sowing before the monsoon sets in.

However, justifying his bank’s stand on this, the SBI chief general manager said that loans for farming equipments (tractors, combined harvesters and power tillers) constitutes a small portion of the total loan given by the bank to the farming sector. He said that while loans given against such equipment add up to just Rs 7,000 crore, total lending by SBI to the farm sector is around Rs 43,000 crore.