SBI puts temporary ban on farm equipment loans

Worried over rising defaults on loans for new tractors and combine harvesters, State Bank of India (SBI) has decided to put a temporary freeze on fresh credit to buy such farm equipment. Instead, it will concentrate on recovering bad debt from such advances.

"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.

 

SBI is the largest player in the tractor and farm financing business. The bank's total farm sector advances are close to Rs 43,000 crore, with non-performing loans estimated at 7 per cent of this portfolio.

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

SBI executives said after the announcement of the Rs 60,000 crore farm loan waiver programme in this year's Budget, the bank has seen a rise in defaults, 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.

Even after the announcement of the fourth quarter results, SBI Chairman OP Bhatt had pointed out that rising defaults in farm loans had added to the bank's bad debts.

The bank had said gross non-performing loans rose by Rs 2,800 crore. Of this, 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.

While other banks may follow in SBI's footsteps, bankers are unwilling 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 said his bank had seen a problem in recovery of loans for farm equipment in some zones, but it did not plan to put a ban on fresh lending for equipment. "These loans have a political dimension and a ban could create a backlash," he added.

A senior Bank of Baroda executive said there has been a general tendency to delay payments but it was assessing whether the problem was chronic.