State Bank of India (SBI) has backtracked on its move to stop giving loans to farmers for farm equipment such as tractors. This is likely to be the result of political pressure.
Such loans often turn into non-performing assets. In fact, the rate of delinquency of such loans has increased from 10% to 17% in the last one year. Studies have shown the time for which tractors must be worked to be economical is much higher than their actual use. In other words, tractors lie idle as they are of little use to many, if not most, farmers. The small size of landholdings across India points to the diseconomy of such equipment purchases.
Yet, politicians seem to think otherwise. Perhaps that has more to do with the fact that elections are around the corner. There are other ways to please a rural electorate instead of ruining the health of the banking sector. SBI had taken the decision not to lend on commercial grounds. There is nothing commercial about the decision to revoke it.