Executives from leading farm equipment manufacturers International Tractors Ltd (ITL), Escorts Ltd and John Deere India Pvt. Ltd said that lenders are likely to sharpen their focus on financing tractor sales rather than automobiles, encouraged by a good rabi crop & burgeoning water reservoir levels.
This push towards tractor financing comes because the outlook for automobile sales remains bleak as the pandemic-induced countrywide lockdown & the economic slowdown that ensued. As per the industry body, Society of Indian Automobile Manufacturers, auto sales are expected to be 35 percent - 40 percent lower in FY21, if gross domestic product growth remains flat.
According to a report by brokerage firm Emkay Research, the dip in tractor sales, however, is expected to be a relatively benign 10% this fiscal. “I am not worried about tractor financing as I see banks, which are active in this industry, & are trying to bounce back. The private banks and NBFCs (non-banking financial companies) have been increasing their rural portfolio with more budget allocation to tractors than other industries, like automobiles," said Raman Mittal, executive director at ITL, which makes Sonalika tractors, to Mint.
He added that there are around 20 financial institutions that actively lend to the farm equipment industry, which sells 700,00-750,000 tractors a year in the domestic market. Tractor manufacturers believe that while a substantial part of sales was lost amid the lockdown, the next quarter will see a strong recovery. About 80% of the lending in the farm machinery segment in the country comes from private banks and NBFCs, said Mittal.
Shamsher Dewan, vice-president and sector head, corporate sector ratings, Icra Ltd said “Delinquencies in tractor funding do not spike as much as they do in the commercial vehicle or trucking segment. Although there can be some bumpiness in the cash flows in tractors, it is still better than lending to truck fleet operators."
Souce: Livemint
