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Kotak Bank anticipates increased demand for used tractor loans, addressing rising prices and shifting farmer preferences, driving agricultural financing.
By Robin Kumar Attri
In the wake of significant growth in tractor prices over the past couple of years, Kotak Mahindra Bank anticipates a pronounced rise in demand for financing used tractors compared to new ones. Shripad Jadhav, President of Retail, Agriculture, and Gold Loans at Kotak, underscores the impact of this price hike on affordability, signaling a shifting trend in the agricultural financing landscape.
"The tractor prices have skyrocketed by 20-25% in the last two years. This surge unquestionably affects affordability," Jadhav stated, shedding light on the pressing need for accessible financing options in the agricultural sector.
The implications of this price escalation are reflected in the projected sales figures for FY24, with expectations of a 7-8% decline compared to the notable 12.2% growth witnessed in FY23. Jadhav further explains that labor shortages and the consequential rise in labor costs have compounded the necessity for tractor usage in various agricultural activities such as land preparation, transportation, and harvesting.
In response to these market dynamics, small-scale farmers are adapting their strategies by opting for lower horsepower (HP) tractors or maintaining a combination of old and new tractors, both for personal use and rental purposes, thereby bolstering overall tractor demand.
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At present, the used tractor portfolio constitutes approximately 30% of the total tractor book, with 40-50% of customers opting for pre-owned tractors. In terms of value, pre-owned vehicles represent around 60% of new tractors.
Kotak Bank, a pioneer in refinancing pre-owned tractors, has been actively involved in this segment for the past decade. Despite the absence of formal industry data on used tractors, Kotak commands an estimated market share of 10-20% in this domain.
Jadhav emphasizes Kotak's commitment to catering to the evolving needs of farmers, asserting, "There is a huge market for second-hand tractors. We also offer top-up loans to our existing customers, facilitating their urgent financial requirements."
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In FY23, Kotak witnessed a commendable 16% growth in its tractor loan portfolio, even as the industry experienced a 7-8% decline. Looking ahead, Kotak aims to further expand its portfolio by introducing more convenient offerings tailored to the requirements of contemporary farmers.
In addition to tractor loans, Kotak Bank provides an array of financing solutions under its agriculture portfolio, including term loans for infrastructure investment, Kisan Credit Card (KCC) loans for working capital, and implement loans for auxiliary equipment such as loaders, harvesters, and sprayers. The average ticket size for tractor loans stands at ₹5 lakh, while crop loans typically range between ₹7-8 lakh.
As the agricultural sector navigates through evolving challenges, Kotak Bank remains steadfast in its commitment to supporting farmers and driving sustainable growth in the rural economy.
Kotak Bank foresees a rise in demand for used tractor loans amidst rising prices, labor shortages, and evolving farmer preferences. With a commitment to addressing the needs of the agricultural sector, Kotak remains poised to facilitate sustainable growth and financial empowerment for farmers across the nation.
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