Due to Loan Waivers Rise in Tractor Loans Delinquencies

Rating agency Fitch said, Because of loan waivers Delinquencies on tractor loans could rise as other Indian states are likely to follow Uttar Pradesh (UP’s) lead in waiving loans.

Earlier this month the UP state government announced a Rs 36,359 crore loan waiver with a cap of Rs 1 lakh per farmer, for small and marginal farmers. Though tractor loans were not included, expectations are that they could be eventually.

Fitch said this together with the fact that governments in Maharashtra, Punjab and Haryana could also announce similar waivers may increase delinquencies, though it is unclear whether tractor loans will also be waived in these states.

Fitch said, “These four states account for around 30% of India's population…. We would expect the delinquency rate on agricultural loans to take several months to return to normal following the announcement of policy details. If the farmers postpone loan repayments and use the money earned elsewhere, it could take at least until the next harvest in six months' time to cure delinquencies.”

Tractor loans account for 10% to 21% of the securitised pool in six of the 21 Fitch-rated asset backed securities transactions. They accounted for 5% to 10% in another 11 transactions. However, the maximum exposure to tractor loans from these four states was 3% among the securitised pools.