Shripad Jadhav provides an insightful analysis of the agri-business financing landscape, offering a comprehensive exploration of the nuances associated with financing tractors for farmers
Agri-business is a significant sector for lending institutions, particularly in India where agriculture plays a prominent role in the economy. Lending institutions that effectively serve the needs of agri-businesses can play a crucial role in supporting agricultural growth and food security.
Shripad Jadhav, President and Head of Tractor & Farm Equipment, Crop Loans, Gold Loans at Kotak Mahindra Bank Limited, sheds light on his institution’s strategic commitment to Priority Sector Lending (PSL), a domain that encompasses the crucial sector of tractor financing. In an insightful conversation with ET Edge Insights, Shripad Jadhav delves into the intricacies of financing tractors for farmers. The discussion touches upon the historical utilization of traditional verification and documentation methods for loan applicants before the introduction of Aadhar, while also shedding light on the transformative role that mobility platforms and digital solutions have assumed in the realm of tractor financing, among various other topics.
He also underscores the invaluable insights derived from his seven years of experience working with Mahindra, an experience that has equipped him with a deep understanding of the intricacies involved in tractor financing.
Excerpts
What was Mahindra’s vision for the tractor industry in India, and how did you contribute to it?
My journey began when I joined Mahindra and Mahindra after completing my MBA in finance, in 1995 and, Mahindra was undergoing organizational restructuring. They saw a significant opportunity in India’s agricultural sector as the country was growing, and they had a collaboration with International Harvester, a major tractor company in the US. So, I became part of their strategic initiatives to focus on the tractor industry in India.
Could you explain the challenges you encountered in financing tractors for farmers in India during your tenure at Kotak Mahindra Bank?
Financing tractors for farmers in India posed several challenges. Most farmers lacked proper documentation, like Know Your Customer (KYC) records, and had limited financial history. Convincing banks to provide loans to such farmers was difficult. When I joined Kotak Mahindra Bank in 2003, the banking landscape was sceptical about lending to farmers with limited paperwork.
At Kotak Mahindra Bank, my focus was on Priority Sector Lending (PSL), which included financing tractors. I leveraged my seven years of experience working with Mahindra to understand the nuances of tractor financing. We started small, essentially as a startup within the bank, with guidance from leaders like Deepak Gupta and Uday Kotak. We gradually built our portfolio and expertise in tractor financing.
When did you launch the tractor financing product at Kotak Mahindra Bank, and how has it evolved since then?
We launched the tractor financing product on October 27, 2003. As of now, we’ve been in the business for nearly 20 years. Over this period, we’ve provided over a million loans for tractors, and our market share in tractor financing is around 10.5% to 11% on the wholesale side. This means that for every ten tractors sold in India, we finance one of them, making us a significant player in the market.
Could you explain the challenges you encountered in financing tractors for farmers in India during your tenure at Kotak Mahindra Bank?
Financing tractors for farmers in India posed several challenges. Most farmers lacked proper documentation, like Know Your Customer (KYC) records, and had limited financial history. Convincing banks to provide loans to such farmers was difficult. When I joined Kotak Mahindra Bank in 2003, the banking landscape was sceptical about lending to farmers with limited paperwork.
Can you explain how the introduction of Aadhaar revolutionized KYC and verification processes for farmers in India?
The introduction of Aadhaar had a transformative impact on KYC (Know Your Customer) and verification processes for farmers in India. Before Aadhaar, verifying the identity of farmers was a challenging task as they often lacked proper documentation. However, with the implementation of Aadhaar, every individual in India had a unique identity linked to their biometrics and demographic information. This made it much easier to establish the identity of a farmer.
Aadhaar provided a universal and foolproof method of verifying a person’s identity, making it a game-changer for the financial industry, especially in rural areas where many people lacked traditional identification documents. It allowed banks and financial institutions to capture a farmer’s picture, fingerprints, and other relevant details, ensuring a secure and reliable KYC process.
How did you manage KYC and verification before the widespread use of Aadhaar in India?
Before Aadhaar became widespread in India, verifying the identity of farmers was a meticulous and resource-intensive process. We had to rely on traditional methods, including physical verification and documentation. Here’s how it worked:
• Field Investigations (FIs): Our sales team would visit the farmer in person and gather information about their identity, address, and land ownership. The FI report included details about the farmer, their land, and a map to reach their village.
• Verification by RCU: The Risk Containment Unit (RCU) would conduct sample verifications to ensure that the information provided by the sales team was accurate. This involved physically visiting the farmer’s village, verifying the details in the FI report, and capturing photographs.
• Certification by Local Authorities: We often relied on local authorities such as the “talati” or village head for certification of the farmer’s identity and land ownership. They would sign and certify the information provided in the verification process.
• Passport-Sized Photos: Due to the absence of photocopying facilities in rural areas, we used pre-printed forms for capturing passport-sized photographs. These photos were then verified and certified by local authorities.
This process was time-consuming and required a lot of effort, but it was necessary to ensure the authenticity of the farmer’s identity and land ownership. However, with the introduction of Aadhaar, these processes became more streamlined and efficient.
Can you explain the role of mobility platforms and digital solutions in tractor financing, especially during the COVID-19 pandemic?
Mobility platforms and digital solutions played a crucial role in tractor financing, particularly during the COVID-19 pandemic. Here’s how they contributed to our operations:
• End-to-end Mobility Solution: We developed an end-to-end mobility solution that allowed us to conduct customer acquisition and servicing through mobile devices. This meant that our sales team could interact with farmers, capture necessary documents, and process loan applications entirely on mobile devices.
• Remote Operations: During the COVID-19 pandemic, mobility platforms enabled our teams to operate remotely. While our processing centers were located in urban areas, our teams could quickly shift to working from home, thanks to digital solutions. This ensured minimal disruption to our operations.
• Customer Acquisition: Farmers could apply for tractor financing through our mobile app, reducing the need for physical visits to bank branches. This was especially crucial during lockdowns and restrictions when movement was limited.
• Digital Documentation: Digital solutions allowed for the secure storage and transmission of documents. Farmers could provide necessary documentation through the mobile app, and our teams could verify and process these documents digitally.
• Real-time Updates: Mobile solutions provided real-time updates to both our teams and farmers. Farmers could track the status of their loan applications, and our teams could monitor and manage the loan portfolio efficiently.
• Data Security: We ensured that all customer data remained secure throughout the process. Digital solutions came with robust security measures to protect sensitive information.
• Continued Operations: While many businesses faced challenges during the pandemic, our mobility-driven approach allowed us to continue operations effectively and serve farmers’ financing needs.
In summary, mobility platforms and digital solutions not only streamlined our operations but also ensured that farmers had access to tractor financing even during challenging times like the COVID-19 pandemic.
