MUMBAI, July 19: Government-run State Bank of India (SBI) said on Saturday it had lowered the interest rate on one-year farm loans by 50 basis points to 8.75 per cent.

This move is in consonance with the government’s desire to help the farming community which contributes significantly to the country’s economy, India’s largest bank, which has a 20 per cent share of the nation’s banking business, said in a statement.

The announcement comes two days after the government asked state-run banks to cap interest on farm loans for up to $1080 at nine per cent and to offer tractor finance schemes to farmers.

Analysts say these incentives were offered to the farming community with an eye on national elections expected to be held in 2004.

The farming sector employs more than two-thirds of the country’s billion-plus people, a vast majority of the voting population. The sector also accounts for a quarter of total output in one of Asia’s fastest growing economies.

The banking sector’s role is also seen as critical to the Indian economy achieving a projected growth rate of 6.0 per cent to 6.5 per cent this year.

SBI, which has 9,000 branches across the country and nearly Rs3.5 trillion in assets, said the rate offered to farmers was now 175 basis points below what banks charge blue-chip companies and top rated borrowers.—Reuters