SBI withdraws circular, resumes farm equipment loans

LOAN ISSUES: The circular had given rise to fears that other banks would follow in the SBI's footsteps.

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New Delhi: The State Bank of India has withdrawn its controversial circular, issued last week.

A two-line release from SBI reads, "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 The Circular is withdrawn with immediate effect."

Five days after stopping farm loans, the State Bank of India has resumed tractor and farm equipment loans.

The country's largest state-owned bank had decided to put on hold any new loans to finance new tractors and any farm mechanization activities, in a circular issued last Friday from Mumbai which cited the bank's large portfolio of tractor loan accounts with high overdues.

The move, which was prompted by UPA government's budget declaration of farm-loan waiver of Rs 60,000 crores, was first reported on CNN-IBN.

This circular had given rise to fears that other nationalised banks, who have to bear the burden of UPA government's loan waiver scheme, may soon follow in the SBI's footsteps.

On Wednesday, SBI issued a statement saying that the circular was misunderstood and was being withdrawn with immediate effect.

Following the report on CNN-IBN, there was widespread concern voiced across the political divide.

It gave the Opposition BJP sufficient fodder to accuse the Manmohan Singh government of being "insincere" about serving rural India, at a time when the UPA government has been actively pushing its pro-rural credentials through a spate of advertising campaigns.