Harish Damodaran
Phalguna Jandhyala

Nabard's stringent guidelines for financing hit sales

New Delhi June 6 If you want a car or two-wheeler loan, all that you need is your last salary slip, recent bank statements, residence proof, permanent account number and latest income tax returns.

Once done, the loan gets processed within 48 hours. Further, there would be many banks chasing you, offering to do all the paperwork on a loan, against which the only security is the vehicle itself.

Collateral Security

But suppose you are a farmer wanting a loan for buying a tractor — an asset that is hard, less prone to depreciation and commanding better resale value.

Logically, one would expect banks to be as obliging and not insist much beyond hypothecation of the financed vehicle. That is, however, not the way things work on the ground.

The National Bank for Agriculture and Rural Development's (Nabard) guidelines for financing of farm machinery requires farmers to offer not only the underlying asset (tractor) but also land as collateral security. Moreover, this land pertains to a minimum holding of eight acres, that too "perennially irrigated".

Given that this kind of land nowadays fetches no less than Rs 5 lakh, it means pledging an asset worth Rs 40 lakh for a loan of Rs 1-3 lakh.

What is more, this minimum landholding norm applies to any loan, irrespective of size or horsepower, and even for purchase of second-hand tractors! "The stipulations for tractor loans today are similar to what they were for cars and bikes in the pre-nineties," notes Mr Ravindra Kumar, Managing Director, SAS Motors Ltd.

The result: While the domestic sales of cars and two-wheelers doubled over the last five years to nearly 11 lakh and 80 lakh, respectively, tractor sales have been stuck at around 2.5 lakh.

Rigid conditions

"For all the talk about priority sector lending, the fact is that the current norms make hardly 5 per cent of our farmers eligible for tractor loans.

This is unfortunate when you consider the 30 lakh-odd tractors sold annually in China, where holdings are as small as ours," adds Mr Kumar, whose Delhi-based company sells Chinese-design 22 HP tractors under the `Angad' brand.

According to Mr L.D. Mittal, President, Tractors Manufacturers' Association, banks are so rigid with regard to tractor loans that "even if a couple of defaults or delays in payments take place in a village, the entire village is barred from accessing finance."

That, in turn, has led to a virtual stagnation of an Rs 8,000-crore industry.

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