Despite the modernization in recent decades, agriculture employs almost 50% of the workforce in India. Agriculture and allied sectors contribute to approximately 15%-17% of the GDP of India. India is the second largest producer of agricultural products in the world. And with the increase in population every year, the demand for agricultural products is on a continuous rise. This, in turn, has pushed the agricultural sector to look for new and innovative ways to raise agricultural output. These include investing in new horticulture crops, better seeds, modern farm equipment, advanced pesticides and compost, etc. However, all these products require an initial investment and not farmers in the country have the wealth to undertake such investments. Hence, to help farmers do their job well and share this financial load, many financial institutions, both private and public, have come up with different kinds of funding options and policies.
The most important and big-ticket requirement for a farmer is a tractor. But the price of a tractor is between 4 lakhs to 10 lakhs and hence it is not possible for most farmers to invest in one right away. This is where external financing comes in. Many non-banking finance companies (NBFC) and PSU banks have arrangements with the different tractor manufacturers in the country and provide loans to farmers for tractor purchase.
Just like other types of loans, the eligibility for a tractor loan depends on the borrower’s credit history and some other requirements like the size of the land owned. This kind of loan is available to both farmers and businessmen who wish to buy a pre-owned / used or new tractor for agricultural or commercial purposes. If the borrower is a farmer, the agricultural income is considered and if the borrower is a businessman or a salaried person, the commercial income shall be considered for the loan. The bank or lending institutions may fund up to 90 percent of the total cost of the tractor, however the exact amount depends on the credit evaluation of the customer. The good news is that farmers do not need to mortgage their lands or other assets to avail a tractor loan, and hence they are not faced with a risk of losing anything to the bank or lending institutions.
How the Financing Process Works:
While the buyers (Farmers and businessmen) can approach the lending institutions directly for tractor loans, in the most cases the dealer assists the customers in submitting the application. The entire procedure is simple and straightforward. However, the process is still quite manual and requires copies of many documents such as identity proof, address proof, income proof, photographs, bank statements etc. Also, home visit by the loan provider NBFC or Bank is mandatory. This is the reason why tractor loans can sometimes take a few weeks for disbursal. Very few institutions accept online applications for loans.
An important feature of tractor loans is that they can be structured by quarterly and half yearly payment terms (instead of monthly EMI)
The most popular NBFCs and Banks providing Tractor loans in India are Cholamandalam, Shriram Transport Finance, Mahindra Finance, Magma, SBI Bank, L&T Finance, and Kotak Mahindra Bank.