Tractor loan delinquencies could rise due to loan waiver

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

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.

“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,” Fitch said.

However, the negative impact of any potential rise in tractor loan delinquencies will be limited on Fitch-rated asset backed securities because of low exposure in these states.

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.

“The introduction of government support might help cure delinquencies faster, but only if state governments compensate lenders quickly - which is unlikely, given the usually slow workings of state bureaucracy,” Fitch said.