Tractor sales may slow down after State Bank of India, the country's largest bank, decided to halt loans for purchasing tractors and farm equipment. The Tractor Manufacturers Association opposed the move in a circular issued today.
SBI put a temporary ban on tractors and farm mechanisation loans, starting this week, citing the reason of rising overdues. SBI finances about 25 per cent of all tractors sold in India, with a finance exposure of Rs 7,000 crore (Rs 70 billion) as of last year. The ban will remain effective for a period of two months.
According to an industry expert, India witnessed sales of about 325,000 tractors last year, of which 90-95 per cent were financed by banks and other financial institutions.
"This (SBI's withdrawal) is bound to impact farm machinery sales, farm productivity and foodgrain production. SBI is the leading financier of the farm machinery business and this move during the peak agricultural season when farmers need these loans most, will adversely affect the agriculture and economic growth.
SBI should reconsider its position urgently in this regard and find ways and means to create filters of customer quality, so that its own interests and those of the industry are well protected." said L D Mittal, president, TMA.
Industry experts say the impact of the pull-out by SBI will be felt more by small-and medium-sized tractor manufacturers, while larger players like Mahindra and Mahindra (M&M), Tafe and Sonalika will be largely safe due to the presence of alternative means of financing.
An official from one of India's largest tractor manufacturing company said, "We will be impacted, but not in a large way as we have a plan B in place. We cannot completely discard SBI and hence will be talking to them this week for a review of their decision. We are optimistic that they will kindly look into the matter with great concern."
Tractorisation and farm equipment are the key to productivity at the farm level to increase the disposable income level of the farmer. In a scenario of rising inflation, particularly with respect to input costs to farmers and food prices, productivity is critical to farmers' income and control on food prices.
This move will adversely affect both, stated the release from the Confederation of Indian Industry. Mittal added that tractor manufacturers and dealers will extend all possible support to banks so that the spirit of implementation of the budgetary proposals is kept and the farm sector receives its due share of support and motivation for continued agricultural growth, which is key to the GDP.
According to a study by Disha Institute of Management and Technology, on an average, about 400,000 tractors are produced in India every year, a majority of which are sold domestically.
M&M is the country's largest and the world's fourth largest tractor maker, while Tafe and Sonalika follow as the country's second and third largest.
