Kotak Mahindra Bank said it expects financing for used tractors to grow faster than new tractor funding due to rising prices of new tractors and higher cost of labour.

“Tractor prices have gone up by 20-25 per cent in the last two years. This has a definite impact of affordability,” said Shripad Jadhav, President - Retail, Agriculture and Gold Loans.

This is also being reflected in FY24’s tractor sales which are expected to be 7-8 per cent lower compared with a growth of 12.2 per cent in FY23, he added.

“There is also a labour shortage and cost of labour has gone up significantly for agricultural activities like land preparation, transportation and harvesting. Tractor usage is becoming imperative for these activities, which is also supporting demand,” Jadhav told businessline.

In addition, small land-holding farmers are opting to buy lower horsepower (HP) tractors, or choosing to keep one old and one new tractor, even for the purpose of renting, which is cumulatively driving tractor demand.

Currently, the used tractor portfolio is about 30 per cent of the total tractor book. Around 40-50 per cent customers are buying used tractors whereas in terms of value it is about one-third given as the value of pre-owned vehicles is around 60 per cent of new tractors.

Kotak Bank started refinancing pre-owned tractors around 10 years back and was one of the initial banks to venture into this segment. While there is no formal industry data source available for used tractors, assuming it to be half of the new tractor industry, Kotak Bank has an estimated market share of 10-20 per cent.

“There is a huge market for second hand. We also offer top-up loans to our existing customers, which helps them manage urgent financial needs,” Jadhav said, adding that in FY23, Kotak’s tractor book grew 16 per cent even as the industry de-grew 7-8 per cent.

“This year also, we are looking to grow our portfolio. We are also launching and pushing crop loans. We already do it but we are coming out with a proposition which is more convenient for today’s farmers and have built some product variants on the KCC loan offering,” he said.

Beyond tractor loans, Kotak Bank also offers term loans for infrastructure investment, KCC loans for working capital, and implement loans to allied workforce such as loaders, harvesters, sprayers or farm equipment under the agriculture portfolio. The average ticket size for tractor loans is around ₹5 lakh whereas for crop loans is ₹7-8 lakh.