Tractor financing
Tractor financing plays an important role in the
prospects of the tractor industry as out of the total tractors sold in India
Tractor industry witnessed Compounded Annual Growth
Rate (CAGR) of 11.8 per cent during 2002-03 and 2007-08 fueled by easier
availability of credit from commercial banks, regional rural banks (RRBs),
non-banking financial companies (NBFCs), etc. However, with spiraling interest
rates, non-performing assets (NPAs) of tractor financing portfolio of major
organisations touched alarming levels during the first half of 2008-09. As a
result, disbursement norms became more and more stringent since first half of
2008-09. On the back of this, domestic tractor industry has degrown in the
second half of 2008-09.
According to CRISIL Research estimates, annual amount
payable towards loan repayment has gone up by 99 per cent (CAGR of 18.7 per
cent) during 2004-05 and 2008-09 because of the following parameters:
·
Increase in tractor prices, hence, the ticket size
attributed to growth of 66 per cent in annual amount payable towards loan
repayment
·
Increase in interest rates resulted in growth of 15
per cent
·
Decrease in loan tenure contributed growth of 18 per
cent
CRISIL Research estimates the annual amount payable
towards loan repayment to have gone up by 30-35 per cent in 2008-09 over
previous year mainly due to change in following parameters:
·
Increase in tractor prices by around 10 per cent
·
Increase in interest rates by around 200 bps
Stringency in disbursement norms and increasing annual
instalment amount has mainly resulted in decline in domestic retail tractor
sales in second half of 2008-09.
CRISIL Research expects tractor financing to continue
to remain major cause of concern for 2009-10.
Therefore, in this chapter, we focus on the following
parameters of the tractor financing industry:
·
Classification of new tractor financing industry
·
Size of the industry
·
Key players and industry structure
·
Movement in key variables and its impact
·
New evaluation structure
Classification of new tractor financing industry
Tractor financing for commercial banks is included
under the gamut of agricultural finance, which helps domestic banks meet their
priority sector lending target of 18 per cent set by the Reserve Bank of India
Farm machinery loans are for the purchase of tractors,
power tillers, trailers, combine harvestors, grain threshers, sprayers,
dusters, ploughs, mechanical weeders, or any other agricultural machinery.
CRISIL Research estimates, of the total commercial bank finance provided for
farm mechanisation, tractor loans constitute 50-55 per cent.
CRISIL Research estimates, of the total tractors
financed, around 95 per cent of tractors are financed for agricultural purposes
and remaining for commercial purposes.
Commercial banks generally charge higher rate of
interest for tractors purchased for commercial purpose, as they do not
contribute to the priority sector lending. Commercial banks require proof of
agricultural landholding of the borrower for financing the tractor for
agricultural purposes. However, proof of income is required to finance the
tractor for commercial purposes; the borrower need not hold agricultural land.
Size of the industry
CRISIL Research estimates that the new tractor
financing industry, assessed at Rs 76 billion for 2008-09, registered CAGR of
6.7 per cent during 2004-05 to 2008-09. Tractors purchased on finance have come
down from 95 per cent in 2004-05E to 85 per cent in 2008-09E. Thus, finance
penetration has declined from 76 per cent in 2004-05E to 68 per cent in
2008-09E.
Table 1: Tractor financing - Disbursements
|
|
2004-05E
|
2007-08E
|
2008-09E
|
|
Domestic retail sales volume (in nos.)
|
227,637
|
302,948
|
287,801
|
|
Domestic retail tractor market size (Rs billion)
|
72.5
|
108.7
|
111.5
|
|
Tractors purchased on finance (per cent)
|
95
|
90
|
85
|
|
Loan-to-value (per cent)
|
80
|
80
|
80
|
|
Disbursements (Rs billion)
|
58.5
|
83.2
|
75.8
|
|
Source: Industry, CRISIL Research
|
|
|
|
CRISIL Research estimates, of the total tractors sold,
around 25-30 per cent are purchased in exchange of old tractors. Thus, in
2008-09, used tractor financing industry is estimated at Rs 10.8 billion.
Generally, ticket size of used tractors financed is between Rs 1-1.5 lakh and
loan-to-value amount is between 60-65 per cent.
