SBI freezes farm equipment loans

State Bank of India a public sector bank is the largest player in the tractor and farm financing business. The bank's total farm sector loan is close to Rs 43,000 crore, with non-performing loans estimated at 7 per cent of this portfolio. There has been increase in the number of defaults on loans for new tractors and combine harvesters, so the bank has decided to put a temporary freeze on fresh credit to buy such farm equipment. The bank sources said it will concentrate on receiving bad debt from such advances. However this decision of bank might face political reaction.

"The bank has issued instructions not to grant fresh loans for tractors and similar equipment for the next two months. The incidence of non-performing loans in this category is very high, a trend which is harmful from the commercial angle," a senior SBI executive confirmed.

Bank sources said in the farm equipment segment the payment default rate is as high as 17 per cent on a portfolio of Rs 7,000 crore. The problem of defaults is more acute in the more prosperous states like Punjab and Haryana.

SBI executives there has been rise in defaults after the announcement of the Rs 60,000 crore farm loan waiver program in this year's Budget, especially on the part of those who have the ability to repay debt.

"There is definite scope to improve recovery and we will concentrate on this front and resume lending in this segment later," they said.

SBI Chairman OP Bhatt said rising defaults in farm loans had added to the bank's bad debts even after the announcement of the fourth quarter results. The bank said there has been rise by Rs 2,800 crore in gross non-performing loans of which Rs 1,000 crore was during the fourth quarter due to defaults after reports of the government's plans for a farm debt waiver started circulating towards the end of December.

May be other banks follow SBI’s footsteps, but bankers are not willing to admit to this. "Such a move is fraught with political reaction, which may force us to review our decision," a senior executive with a public sector bank explained.

A Bank of India executive informed though his bank has been facing a problem in recovery of loans for farm equipment in some zones, but there are no plans to put a ban on fresh lending for equipment. "These loans have a political dimension and a ban could create a backlash," he added.

On the other hand a senior Bank of Baroda executive said there is a general tendency to delay payments but it is assessing whether the problem was chronic.