The Hindu Business Line : Tractor cos relying more on pvt banks, NBFCs to boost sales

Snapshot
All manufacturers, barring Escorts, New Holland and John Deere, saw volumes drop in 2007-08
PSBs currently insist on farmers mortgaging both land and tractor as collateral for finance
ICICI, HDFC Bank, Kotak Mahindra, L&T Finance and Indiabulls Financial Services, are now offering up to 75 per cent finance without any land mortgage requirement.

Priyanka Vyas
Harish Damodaran

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New Delhi, July 6 With tractor sales dipping, manufacturers are looking increasingly at private sector banks and non-banking finance companies (NBFC) to offer retail financing options.

During 2003-04 to 2006-07, tractor sales nearly doubled, bolstered by the United Progressive Alliance (UPA) Government’s thrust on boosting rural credit. But since last fiscal, there has been a slowdown, which the industry believes has to do with public sector banks turning cagey and adopting more stringent lending norms.

“Availability of credit is crucial for the sector, as over 90 per cent of tractors are bought by farmers against loans, mainly extended by public sector banks,” said Mr Anjanikumar Choudhari, President (Farm Equipment), Mahindra & Mahindra Ltd (M&M). According to him, the surge in rural credit disbursement during 2003-07 could have led to a build-up of non-performing assets, forcing banks to go slow on fresh lending.

Over and above this, the uncertainty over the modalities of the farm loan waiver scheme caused many banks to pull back and “even stop extending credit during April-June”, he added. The result: sales fell by 5.23 per cent during 2007-08 and have remained sluggish in the first quarter of this fiscal as well. All manufacturers, barring Escorts, New Holland and John Deere, saw volumes drop in 2007-08.

Land mortgage

Public sector banks currently insist on farmers mortgaging both land and tractor as collateral for finance. Farmers must have a minimum four acres of irrigated land to get a loan for a tractor of less than 35 horsepower (hp), and six acres for tractors above 35 hp.

Moreover, loan applications are accepted only on receipt of all documents, including details of land ownership, certificate from the Block Development Officer/Tehsildar on existing mortgage if any on the land, no-objection letters from the local cooperative society, and so on.

“Right now, it takes an average of 93 days from the time the tractor is despatched from my factory to the dealer to the payment reaching me. It takes about 45 days for the processing and disbursal of a tractor loan from the time of application,” said Mr Rohtash Mal, CEO, Agri Machinery Group, Escorts Ltd.

It is this vacuum that some private banks and NBFCs are seeking to fill. ICICI, HDFC Bank, Kotak Mahindra, L&T Finance and Indiabulls Financial Services, for instance, are now offering up to 75 per cent finance without any land mortgage requirement. If the applicant has a steady other income or is an income tax payer, up to Rs 3 lakh is sanctioned as loan based on these papers. Further, loans are made mostly on the basis of referrals and pre-sanction enquiries are made within 2-3 days.

The country’s No. 1 tractor maker, M&M is relying more on its NBFC arm, M&M Financial Services Ltd, to offer finance to prospective buyers. The company last month launched a countrywide ‘on the spot loan mela’. Mr Choudhari said about 40 per cent of tractor sales of M&M and 25 per cent of its subsidiary, Punjab Tractors, are now being financed through its NBFC.

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