Data Driven Agriculture Financing Will Be An Area Of Opportunity For Years, Says Sunil Prabhune
Data Driven Agriculture Financing Will Be An Area Of Opportunity For Years, Says Sunil Prabhune
In an unique interview with ETAuto, he mentioned that his paintings does no longer finish with the disbursement of loans, but it surely starts from there, and highlights the necessary function information and analytics play in lending, customer support and mortgage portfolio control. Is.
“We center of attention on the use of information to do away with human bias, subjectivity, usher in larger objectivity, transparency, robustness and credibility. We have a fancy information-centric type that permits us to have a complete view of This guarantees that we’re ready to appear forward and make a decision what stance to take and no longer get stuck responding to the efficiency of the above variables. The information has a vital function to play in giving us an ‘early caution sign’,” Prabhune says.
Q: The rural economy has been a silver lining for the automotive industry in India for the past few years mainly due to a good harvest. How does this reflect on your portfolio and what kind of growth has L&T Finance seen?
Answer: Amidst the harsh realities of the last 18 months coupled with unforeseen economic and human costs, India’s agriculture sector has shown its dependability and ability to recover from one of the most horrific tragedies the country has seen in decades. During the tough times of the COVID pandemic, the rural and agricultural sectors continued to remain resilient, as was evident from the new tractor sales numbers. This was also seen in our particularly strong portfolio performance and collection efficiencies from last year. While the second wave was hard on our country in terms of human costs, the rural economy’s ability to bounce back was on display this year as well.
Broadly speaking, we think this is an area of opportunity and flexibility. If we are willing to take a broad view of the region in terms of multiple states, districts, pin codes, agro-climatic zones, rather than a broad one, we believe that it will become an area of opportunity for decades to come. Will stay
Q: A major challenge in banking is when new consumers without any track record come for loans. How does technology help you in this regard?
Answer: In developed markets, where agriculture is more mechanized, almost 100% of plowing is done by machines. In India it is only 50% and the rest is done with animal or even human power. So the range of opportunity is very clear.
Also, our country represents 1/6 of humanity. So, the responsibility or opportunity is to feed 1/6th of humanity. That’s a second chance.
The third is from the perspective of the glass being more than half full. Today, when we underwrite our farm equipment finance book, about 60% of customers come to us with existing credit bureau data, 40% are new to credit. So, one way of looking at it is that only half or so of the market is addressable. Another way of looking at it is that there is still a very significant segment of customers who do not have the opportunity to access credit. They could potentially serve as new clients for mechanization as well as finance.
Data plays a huge role here. The data allows us to look the same for lending to customers who have no credit bureau history. We have a long experience in underwriting for customers. We focus on using data to eliminate human bias, subjectivity, bring in greater objectivity, transparency, robustness and credibility. We are in favor of credit democratization, which we believe should be the driving force behind any organization that sees financial inclusion as its mission.
Our work does not end with disbursing debt, in fact it begins from there. Data plays a very important role in giving us ‘early warning signals’. These signals are those which we get even before the account becomes overdue a day. What are those potential losses when the account is still regular? Is something not going well in that particular pin code or agro-climatic zone? Has the borrower shown stress with respect to his other loan relationships or lenders outside our loan portfolio? All of these factors are taken into account to trigger early warning signals that allow us to have more specific interactions with our customer and ensure that the account remains in good health.
Question: Agriculture is a volatile sector which depends on factors like monsoon, crop rotation etc. How do you manage these factors; Does technology play a role here as well?
In our case the work begins with the development of a complex economic model that takes into account not only the behavior of the monsoon but also irrigation density, reservoir level, soil moisture level, cropping pattern, prevailing MSP, health of state finances and It also takes into account factors such as optional. Sources of income available to the client, including public works.
Today, when we underwrite our farm equipment finance book, about 60% of customers come to us with existing credit bureau data, 40% are new to credit.Sunil Prabhune
It is a complex data-centric model that allows us to have a comprehensive view of how the sector is likely to perform in the medium and long term. This ensures that we are able to look ahead and decide what stance to take and not get caught responding to the performance of the above variables.
Q: How does the high penetration of Jan Dhan account, Aadhar card and smartphone help your business of knowing your customers even in the hinterlands of the country?
A: The fact that Indians today have access to banking through the Jan Dhan account, a verifiable identifier through Aadhaar, represents tremendous opportunities at a massive scale that is very new to the industry. The penetration of mobile phones has allowed us to leapfrog several steps. The data suggests that rural India has more mobile connections than urban India and many of those connections are smartphones. It’s not just about financiers harnessing data. It is also about customers who consume information, which makes their economic activity, farming, more productive. All these things come together to make a better business model for the farmer in our country.
A bank account means that the payment received by the farmer is transparent and there is no leakage. The National Identifier enables the farmer to transact directly and transparently with multiple entities including financiers. The mobile phone provides a farmer with information about the true price of the produce, and the right interventions that allow the farmer to make important economic decisions to preserve the health of the crop, etc. In our opinion, all of these create a more conducive ecosystem. in which we can lend with more confidence.
On behalf of the financier, we clearly need to respect our client’s privacy. We must be ethical with the data we use in the process of writing off credits or managing the lifecycle of that customer’s account.
The data we have through multiple channels and with the consent of the customer enables us to make well-informed credit decisions as well as take the right actions during account management. One of them is how the lapses in our farm equipment finance book have been reduced and reduced in a secular manner. Moreover, even in the worst phases of COVID, the collection capacity was as good as in the same months last year and was even better over several months. All these testify to the above factors coming at the grassroots level.
Question: Is the behavior of the rural consumer/farmer, who is sometimes affected by loan waiver and is not highly disturbed by the CIBIL score, different from that of the urban consumer?
A: We treat our customers with respect and take their loan obligations very seriously. Sometimes circumstances may compel some of them to delay the payment. But as long as we are there to handle such a customer through that stage, the chances of that customer coming back regularly are very high.
This is not a spectator sport; It is a close contact sport. It also involves giving us an in-depth knowledge of the cash cycle of the farmer. When is the harvest taking place? When is the market leaving? When is the crop monetization happening and when is the money available to the farmer to fulfill his obligations? As long as we are in close touch with the cash cycle of the farmer, the chances of the account going negative are very less.
Most importantly, I don’t think the customer chooses to honor his loan obligation because of the threat to his credit score. This is due to the innate desire of ordinary human beings to honor their promises. It is up to us to create the right enabling environment to help them deliver on those promises. Are we in close contact with customers? Are we aware of their cash cycle and are we providing them multiple payment options, are we giving them the option of digital to ensure that repayment becomes convenient?
Whenever the topic of loan waiver is discussed, many a times NBFC customers are not part of or eligible for the discussion. But we don’t think it has any negative impact on our portfolio. Our relations with our customers are bilateral. We rely on their sense of honor and the robustness of our processes and systems to ensure that the portfolio remains sound.
Q: Beyond tractors, what are the other segments where L&T Finance is seeing decent growth, and what is the overall potential you see in the farm equipment finance sector?
Answer: We believe that there is scope for more mechanization in our country. Within that is a section, agricultural equipment, which is underserved. Out of around nine lakh tractors sold last year, only around 3 lakh to 3.5 lakh equipment of a certain standard quality were sold. There may be locally produced and distributed equipment, but we are talking about equipment that is standard and has a definite pedigree and track record in terms of manufacturer etc.
We envision that this particular area of equipment holds great opportunities within the larger ecosystem of agricultural mechanization. We have come up with innovative products that can generate financing options for our customers who want to buy better equipment to improve the efficiency of their agricultural operations. We certainly see this as an opportunity as we move forward.
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