SBI revamps tractor loan product

To overcome the problem of bad loans in the tractor segment, State Bank of India has introduced the equated monthly instalment (EMI) ‘mode of loan repayment for farmers’.

Further, the bank is encouraging the lady of the farm household to become a co-borrower.

Twin benefits

By doing so, SBI, which faced huge non-performing assets in tractor loans in the recent past leading to it retreating from the segment altogether, is trying to kill two birds with one stone.

For one thing, the monthly repayment schedule, which is usually associated with housing and auto loans, kicks in a month after the loan gets disbursed. For another, the co-borrower exerts pressure on the farmer-borrower to repay the loan on time.

According to SBI Chairman Arundhati Bhattacharya, “Earlier, for tractor loans, we would say that we will take the money back after the cropping season is over…

“Now, if I give you a loan and don’t ask for it for two years, do you think after two years you will give me back anything? You will be lost to me.”

In rural areas, tractors are not only used for tilling the land, but also used as a mode of conveyance.

“Actually speaking, tractors are used on a daily basis…So, they start earning from day one,” she said. So, SBI has created “Stree Shakti tractor loans”, whereby the lady of the house is also made a co-borrower. It charges 12 per cent interest on the loan. Minimum margin for the loan is pegged at 15 per cent. For prompt loan repayment, the farmer is given a 1 per cent interest rate concession. Currently, the EMI per ₹1 lakh of loan works out to Rs2,225.

SBI chief said: “Now, if the lady of the house is made a co-borrower and if they (borrower and co-borrower) put in a little more margin by bringing in her gold as well, they get a little advantage on the interest rate. “And it is a regular EMI product. So, from next month you start paying your EMI. We have found from our experience that where the ladies are also co-borrowers, there is pressure to pay. The discipline is more.”

Jump in bad loans

Bhattacharya pointed out that her bank retreated from the tractor loan segment because it was not able to get the repayments, leading to a jump in bad loans.

However, with the introduction of the revamped tractor loan product, SBI expects the tide to turn, leading to more credit flow to the segment.

Source : The Hindu