FM instructs SBI to withdraw loan circular
By Neelima Shankar
May 23, 2008
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Buckling under pressure from all sides, the country’s largest lender, The State Bank of India (SBI), has withdrawn the circular which aimed at suspending loans to farmers for the purchase of farming equipments. The SBI circular had created quite a furor as it was directed at a very wrong time.

Speaking on the whole controversy, the finance minister, Mr P Chidambaram said that it was "poorly worded and misunderstood", and indicated that he had asked for its withdrawal.

“That circular was poorly worded and misunderstood. I asked my secretary to advise the bank to withdraw it,” he said when asked to comment on the circular.

Speaking strongly against the methodology used by the bank, he said loans must be given and recovered but there was a proper method of doing it. At any given time there would be some non-performing assets (NPA), he added. “I don’t think the circular was justified in the manner it was worded,” he quipped, adding that the best thing was to withdraw it. “The matter is now closed,” he added.

Reacting to all the criticism, SBI had yesterday withdrawn instructions to its branches, given just five days earlier to stop fresh loans for purchase of tractors and other farm equipment.

The bank’s decision to suspend tractor loans was severely opposed by tractor manufacturers, politicians and the farm lobby. Though the bank had been trying to justify the rationale behind the suspension, the SBI took a sudden decision to drop it. The sudden withdrawal of the circular has lead to speculations that the bank has acted under pressure.

In a brief note released to the Press yesterday, SBI chairman, Mr OP Bhatt, said: “We regret that our circular dated 16 May 2008, concerning tractor loans has been misunderstood and has given rise to concern. The circular is withdrawn with immediate effect.”

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