International BusinessScarce lending by banks hitting tractor sales, complains sector
Deficient rains in the agrarian interiors and lack of finance availability from lending institutions, despite a mammoth relief package announced by the Centre last year, is slated to hit tractor sales, the industry says.
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Public sector banks deny holding back lending, but tractor manufacturers say they have done so. The bulk of financing for tractor purchases comes from these banks.
Anjani Kumar Choudhari, president, farm equipment sector, Mahindra & Mahindra, said, “The kind of clampdown on liquidity and credit last year, triggered by the economic meltdown that also led to an increase in interest rates, has not been reversed as far as farm equipment is concerned.”
“There has been no improvement in banks’ lending to the sector. The criteria is made so tough by leading banks that it is very difficult to get a loan,” he added.
In May last year, India’s biggest bank, State Bank of India (SBI), had put a temporary ban on further credit to the sector after its gross nonperforming assets (NPAs) surged to 17 per cent on the Rs 7,000-crore exposure it had to the segment.
With the Union government wiping out Rs 60,000 crore of debts last year, part of the ‘farm loan waiver programme’, tractor buyers and manufacturers expected banks to issue fresh loans, thereby boosting demand.
However, strict evaluation norms and high lending rates imposed by banks made access to loans a rigorous affair.
The industry saw domestic volumes of tractor sales decline by five per cent last year, to 302,241 units from 318,328 units sold in the earlier financial year. Manufacturers attribute the fall to high interest rates and more stringent lending norms.
Interest rates were revised to double-digit figures, close to those charged on cars and SUVs, whereas their earlier average was under 9 per cent. Margin money (the gap between finance availed and cost of product), which used to be 10 per cent, was revised to 20 per cent, which is still applied.
Mallika Srinivasan, director of Chennai-based Tractors and Farm Equipment, the second largest manufacturer, said: “Two years ago, the banks were very aggressive in the lending programme, but the key point is that we would like to see the interest rate and margin money to come down.”
Sources said the tractor manufacturers association plan to raise the issue with the Indian Banks Association.
Banks deny a clamp on lending. “Offtake has been okay. Banks do not see any drastic fall in the credit offtake in the farm mechanisation segment,” a senior SBI official said.