tractor industry and Indian farmers
Rural economy is the back bone of the Indian Economy. In case we could equip the farmers with farm mechanization tools like tractor and implements, the agricultural production will increase tremendously and if the farmers are financially well off, a lot of additional demand for consumer durables like TVs, refrigerators, ACs, washing machines including motor cycles, cars and multi-utility vehicles can be generated which will ultimately help to neutralize this general slowdown in the industry to a great extent unlike other sectors reeling under the shadow of slowdown, there continues to be normal demand for tractors.
The curbs on financing by banks and financial institutions have not prevented the domestic tractor industry - the segment most heavily dependent on financing - from treading on the growth path. This is at a time when most other segments like passenger car and commercial vehicles have been under pressure constrained largely by the tight availability of finance and mounting commodity prices which compelled automobile companies for subsequent price hikes of their models. Tractor companies are registering a healthy growth despite public sector banks going tough in approving tractor loans due to good monsoon and high farm commodity prices. But due to limited availability of retail finance in the industry and the farmers are suffering. Since banks have withdrew their offerings most of the tractor companies who have their own financing arms like Mahindra has, they charge higher interest rates. Though they don’t ask for land mortgage, only the vehicle is kept as collateral, farmers have no other option.
The various obstacles like the slowdown of financing from the banking especially the public sector banks has been the most important factor for the declining trends in the industry despite good monsoon this year. Private / Micro Financiers are taking cues from PSU Banks. SBI withdrew the ‘blanket-ban circular’ – but no real respite on the ground. Decision making has become centralized leading to inordinate delays. In some areas, lending filter now is as high as 10-15 acres whereas average landholding in India is hardly 4 to 5 acres per family. The budget for agriculture is consumed by financial institutions by lending money for non-productive purposes such as warehouses etc. whereas the farm mechanization suffers. In case there are a larger number of NPAs in a particular area, the credit facilities for the whole district is stopped by the lead banks, the total number of defaulters is hardly 5% of the population of the area, but the remaining 95% are also punished for no fault of theirs. For winning the confidence of the farmers’ banks should have farmer-friendly attitude while sanctioning loans for farm mechanization tools like tractors and implements; a particular portion of the budget for agricultural loan should be reserved for farm mechanization tools only.
As per an expert assessment by Agriculture Today research team, 8% of the total agriculture budget will serve the purpose. Bringing back lending norms to 4 acres as market value of agricultural lands has shot up significantly in the recent past. They suggest restoring margin money requirement to 15%. , reduce interest rates for lending to farm mechanization at par with other auto sector. De-centralize sanctioning authority to branch level as before. Factor in income from commercial usage of farm tractors as lending criterion. Provide more liberal floor finance to dealers of tractors and farm implements. Re-visit SBI customer credit scoring model - should be made more liberal. SBI should take the lead in sanctioning more tractor loans on realistic norms to improve the comfort level of farmers, for other PSUs to follow.
The curbs on financing by banks and financial institutions have not prevented the domestic tractor industry - the segment most heavily dependent on financing - from treading on the growth path. This is at a time when most other segments like passenger car and commercial vehicles have been under pressure constrained largely by the tight availability of finance and mounting commodity prices which compelled automobile companies for subsequent price hikes of their models. Tractor companies are registering a healthy growth despite public sector banks going tough in approving tractor loans due to good monsoon and high farm commodity prices. But due to limited availability of retail finance in the industry and the farmers are suffering. Since banks have withdrew their offerings most of the tractor companies who have their own financing arms like Mahindra has, they charge higher interest rates. Though they don’t ask for land mortgage, only the vehicle is kept as collateral, farmers have no other option.
The various obstacles like the slowdown of financing from the banking especially the public sector banks has been the most important factor for the declining trends in the industry despite good monsoon this year. Private / Micro Financiers are taking cues from PSU Banks. SBI withdrew the ‘blanket-ban circular’ – but no real respite on the ground. Decision making has become centralized leading to inordinate delays. In some areas, lending filter now is as high as 10-15 acres whereas average landholding in India is hardly 4 to 5 acres per family. The budget for agriculture is consumed by financial institutions by lending money for non-productive purposes such as warehouses etc. whereas the farm mechanization suffers. In case there are a larger number of NPAs in a particular area, the credit facilities for the whole district is stopped by the lead banks, the total number of defaulters is hardly 5% of the population of the area, but the remaining 95% are also punished for no fault of theirs. For winning the confidence of the farmers’ banks should have farmer-friendly attitude while sanctioning loans for farm mechanization tools like tractors and implements; a particular portion of the budget for agricultural loan should be reserved for farm mechanization tools only.
As per an expert assessment by Agriculture Today research team, 8% of the total agriculture budget will serve the purpose. Bringing back lending norms to 4 acres as market value of agricultural lands has shot up significantly in the recent past. They suggest restoring margin money requirement to 15%. , reduce interest rates for lending to farm mechanization at par with other auto sector. De-centralize sanctioning authority to branch level as before. Factor in income from commercial usage of farm tractors as lending criterion. Provide more liberal floor finance to dealers of tractors and farm implements. Re-visit SBI customer credit scoring model - should be made more liberal. SBI should take the lead in sanctioning more tractor loans on realistic norms to improve the comfort level of farmers, for other PSUs to follow.
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