Kotak Mahindra Bank?s Agri Business Group (ABG) from small beginnings in 2003 with a lending portfolio of Rs 65 crore crossed Rs 1,650 crore by 2008. It has already made its footprints in 10 major states, Andhra Pradesh, Gujarat, Haryana, Karnataka, Kerala, MP, Maharashtra, Punjab, Rajasthan and Tamil Nadu. According to BS Shivakumar, executive vice-president, agriculture finance, the agri business group has developed a focused approach to fund farmers with their entire agriculture project development and covers, horticulture, floriculture, green houses, mushroom cultivation, plantations, dairy development, poultry?layers & broilers, fisheries and bee keeping.
In an interview with FE?s Joseph Vackayil, Shivakumar unfolded the growth story of the Kotak Agri Business. Excerpts:
Among the multiplicity of commercial and co-operative banks with a mandate to lend to farmers at confessional rates, how does a private sector bank find space in the agri business sector?
The agri business should be looked at as a composite sector encompassing the entire rural and semi-urban segment in our country. The private and MNC banks have always been competing in the urban space with their focus on products like car loans, home loans, SME sector, commercial vehicles, and personal loans. In the last five years, the agri business has shown a completely untapped market potential. However, the PSU and co-operative sector banks focused chiefly from the priority sector requirements and hence did business at the concessional rates. While the private banks have also financed the small farmers at the concessional rates stipulated by the government, there is a large business potential in the large scientific agriculture projects, agriculture SME, agro processing and agro export/import segments which are significant growth sectors. The returns being looked by a bank like Kotak Bank is the overall return on the total portfolio and the agri business has been one of the most promising area in the last 3-4 years. Further, it is also seen that the agriculture customer is willing to pay a marginally higher rate if the same loan is offered at his doorstep without the problems of corruption and long waiting period that he had to experience with the existing banks.
Farm lending is said to be very risky-the government writes off crores of farm loans. What is your experience on repayments?
The agriculture sector had five years of good monsoon. The repayments in this sector therefore have been good and the delinquency ratios mirror the troubles of any urban portfolio where banks have lost money in the unsecured personal loans, credit cards in the sub-prime client segment. The agriculture sector also has a similar group?the small and marginal farmers who are lent money without security or only on the mortgage of their small agriculture land. The delays in the agriculture segment are also due to lack of logistics where outstation payments and realisations are delayed. With a strong and dedicated recovery network, the farmers repay along with any accumulated penal interest unlike a litigant urban client.
However the policies of loan waiver or write-offs of the government are a necessary evil that impacts the repayment culture for a temporary period. It is to be seen that in the micro credit segment, the private banks and microfinance NBFCs are able to ensure an above 99% collection efficiency, even at higher interest rates. For the government-sponsored SHG schemes patronised by the PSU banks, it is never above 70%.
Are you only a lender or a guide who holds the hands of the farmers and help them from project report preparation to marketing? Have you evolved an agri business model which will create a win-win situation for the farmer and the banker?
Private banks like Kotak Bank have embarked on development of the entire value chain through financing products, starting from the farmer, the consolidator at the mandi, the agri processor, the agri trader at the city market, the exporter and the large agri corporates. We have also developed dedicated expertise to assess and finance large scientific agri projects like horticulture, green houses, floriculture, composite dairies, prawn & fish cultivation, poultries, rural godown construction etc. Kotak Bank is in fact, one of the largest co-ordinators assessing and financing hi-tech agriculture projects that qualify for government subsidies from dedicated agencies. Kotak Bank has in the last six years financed and secured subsidies for over 200 such projects underlining our capabilities and the confidence of the government agencies. Our aim is to ensure that the client is an intelligent business man who is focused on returns from his agriculture project and not entirely dependent on the weather, market conditions and government loan write-offs to help his agri activities.
Is there any special lending packages for a drought year like this; also any special programmes in times of distress and natural calamities?
The impact on the cash flows and the stress on our clients will be felt in the last quarter of this year or in the first quarter of next year. The schemes to be worked will be region and crop specific. The bank will do all it can to ensure that customers who have so far maintained a good repayment track record are supported and bridge financed in the interim period so that they can continue to sustain the pains of the drought.
Since over 60% of the people live in villages doing agriculture and related activities, what are the Kotak Mahindra plans and proposals for the development of the rural economy?
Kotak Bank has adopted an intensive branch development strategy where rural and semi-urban branches have been increased in specific states to reach a level where a branch can be identified at least within 100 km. Gujarat, Punjab and Tamil Nadu were the first such states. The bank has also used the services of business partners like tractor dealers and insurance agents to reach out to maximum customers.
It has also done a backward integration approach where corporates that are into agro-processing activities are identified and credit reached to their input suppliers like sugar mills, dairies, edible oil extractors etc.
Kotak Bank also strongly helps the rural customers to reap the benefits of investment products like debt and equity investments, insurance products so that these clients also end up saving their surplus and create assets for expansion or as a buffer for a bad year.
