Tractor sales took a severe beating in the month of November 2008, dipping by 20 per cent despite a good monsoon this year.

"The drop in sales was mainly due to the conservative approach of banks in sanctioning loans to farmers," says L D Mittal, president, Tractor Manufacturers Association.

Urging the government to take immediate remedial measures, the Mittal said that "unless this was done, not only would agricultural production suffer, the effects of any slowdown in the agricultural sector will be felt across all sectors."

Mittal further added, while there exists a healthy latent demand for tractors, the limited availability of retail finance is hitting sales, 96 per cent of which are bank financed. It said that if corrective steps were not taken immediately, the drop in tractor sales in December would be still higher.

"The corrective measures include reserving 8 per cent of all agricultural credit for farm mechanisation tools only. The State Bank of India should take the lead in sanctioning more tractor loans on realistic norms for other PSU banks to follow," he added.

Mittal also said that the lending filter should be brought down to farmers having land holdings of at least four acres, with the tractor being made the collateral for such loans. 
"Similarly, the margin money requirement should be restored to 10 per cent," he said.

Mittal said that banks should also factor in income from commercial usage of tractors while sanctioning loans and they should provide more liberal floor finance to dealers of tractors and farm implements.

Mittal further added even private and micro financiers were taking negative cues from PSU banks with regard to tractor financing. "In fact, signals to bank branches from their headquarters continue to be biased against funding the agriculture sector, especially tractors and farm equipment.

He said that the sharpening in the profiling of customers was actually tilted against first-time buyers and smaller farmers, thereby defeating the very purpose of encouraging farm productivity through mechanisation.

Mittal also voiced concern at the centralisation of the decision-making process, which he said was leading to inordinate delays.

"The entire loan approval process has been made cumbersome and complicated," he said.