Amid protests from political outfits and farmers across the country, India's largest lender, State Bank of India [Get Quote], on Wednesday reversed its decision to suspend financing of new tractor and farm mechanisation equipment with immediate effect.

"We regret that our circular (asking SBI branches to put tractor loans on hold). . . has been misunderstood and has given rise to concern. The circular is withdrawn with immediate effect," SBI chairman O P Bhatt said in a statement issued in Mumbai.

On Friday, SBI had issued a circular to its branches asking them to stop disbursals of new tractor loans, citing rising bad loans in this segment.

This decision of the country's largest agri-lender, was met with protests from across the country.

SBI has the largest farm loan portfolio amongst lenders in the country and in the period between April 2004 to March 2008, SBI financed 4.2 million new farmers. Disbursements during this period aggregated to around Rs 70,000 crore (Rs 700 billion).

In FY 08, SBI, for the first time surpassed the 18 per cent benchmark set by the apex bank for agricultural advances as against 14.49 per cent in FY 07.

Similarly, SBI also surpassed the 40 per cent stipulation for priority sector advances, which stood at 43.53 per cent in FY 08 as against 38.52 per cent in FY 07.

However, the bank had seen a sharp rise in defaults in its tractor loans in recent times, which prompted its management to issue the circular on May 16.

Presently, tractor and farm equipment loans of the bank stands at around Rs 7,000 crore (Rs 70 billion), while bad loans comprise around 17 per cent of the total portfolio.

Bhatt also said that the bank wanted to sensitise its branches to reduce the NPAs for the bank and also to help farmers take advantage of the Rs 60,000 crore (Rs 600 billion) waiver programme of the government.

He also said that the bank's non-performing assets (NPAs) in the agriculture sector had risen significantly in the past year.

"We have pockets in the country where there are large overdues in tractor loans...It is our attempt to sensitise our branches across the country (about rising NPAs). As and when this happens, the farmer would be eligible (for loans) and the bank would be willing to lend them again for agricultural activities," he said.

The bank has plans to scale up its agri-lending by 33 per cent to Rs 13,400 crore (Rs 134 billion) in FY 09 and cover around 100,000 unbanked villages by 2010, he said.

Besides, the country's largest lender also has plans to extend additional credit linkage to 200,000 self-help groups across the country this year.

The bank has credit-linked above 10 lakh (1 million) SHG groups till the last fiscal.

SBI has also plans to issue one crore SBI Tiny cards by March, 2010, while 40 lakh (4 million) cards will be issued this year, Bhatt said.