Analytics for Farm Prosperity ..................
How can banks lend to farmers in a cost-effective and risk-free manner was the topic of discussion at a conference organized by Banking Frontiers recently:
Agriculturists appear to have really come a long way in understanding the science behind bettering their productivity by combining the factors of soil, sunlight, rainfall, seeds, fertilizers, pesticides, prices of inputs, prices of outputs, subsidy, transportation, insurance, loans, etc. But, managing this is becoming increasingly difficult. However, the probability of multiplying the profitability is higher for those who take informed decisions. The constant bottleneck faced by farmers managing large amounts of data poses an equally high risk to the lenders. This is where technologies such as weather intelligence and geospatial analytics come to capture a wide variety of data and generate recommendations. This analysis helps boost productivity and profits and lowers risks. To analyze this threat and opportunity, Banking Frontiers organized boardroom session for senior leaders in the agri business in association with The Weather Company, an IBM Business and Switzerland-based SatSure, a decision intelligence company focusing on domains like banking, agriculture, insurance and climate change. The highlights of the discussions:
Agriculture is one sector where use of analytics has been minimal whereas it has played crucial roles in practically every other sector, says Shripad Jadhav, senior executive vice president, Agri Retail &
Dealer Finance at Kotak Mahindra Bank.
He says land records, farm revenue records and everything else become a challenge in agriculture lending. “The ups and downs in the agriculture sector have impacted the good farmers, because they do not have data to prove that they sustained losses. Sometimes, banks are not able to ascertain the stress that farmers have undergone because banks do not have data for that. This is a two-way journey in which both the parties have been impacted,” he said.
CHALLENGES IN LENDING
Agri lending, says Jadhav, is based on land records and geographical locations. “While
acquiring customers, banks should know the cash flow of the customer based on analyzed data. Banks should know what is good for the farmer, from where he can earn enough profits to repay the bank loan. Situational and environment problems are there in every sector, but the issues with regard to agriculture are unique,” he added.
He mentioned that Kotak Mahindra Bank has seen increase in performance in the agri portfolio by making use of mobility technology - ‘ when you are near to the customer, your cost goes down’.
Jadhav pointed out that the Maharashtra government has taken an initiative to provide access to land records to banks. In addition, information with regard to the condition of the land, water level and crops grown in the last 2 years is also available to the banks through APS. If the government is giving subsidies and support for farmers, it helps in the work of the bank.
“The culture of credit has created major problem for us. For example, if one farmer defaults and he gets a loan waiver, then why will other farmers repay their loan? This culture of credit needs to be looked at by the regulator and NABARD,” says Jadhav.
He also maintained that banks are handicapped because of the lack of good number of agronomists and satellite experts on their rolls. Kotak Mahindra Bank, he says, has collaborated with technology firms to develop agri apps and has created various platforms for the benefit of farmers. “Today, companies like BigBasket are directly buying from farmers, thanks to farmers making use of apps. The scourge of middlemen is getting eliminated in the agriculture sector and this will be beneficial to banks and financial firms,” he added.
PRICE TRENDS CRUCIAL
Sunil Kumar, head, Products at commodities exchange MCX, says crop insurance comes into the picture only when there is a crop failure or crop less. He cited the instance of price variations saying soybean is a global commodity and price fluctuations in the US or Brazil may impact the price of the commodity in India too. “So, we need to look at price trends and how price risks can be mitigated. In the developed countries big farmers have better credit rating and finance as compared to India. The money recovered from crops should be profit for the farmers so that they can repay their loans,” he added.
Sunil Kumar pointed out that the government has allowed commodity exchanges to launch derivative contracts in which farmers have the right to sell their produce. If the farmers have produced the right crop then they have the right to the sell them in exchanges, but if the quality of the crop is not good then the insurer will take care of it. “This is a good provision in our financial ecosystem. Commodity exchanges are trying for volume in agriculture although there are better options in products like gold and crude oil. The agriculture sector is not able to take off because the sector is not ready to adopt new systems. It will take time for the sector to increase its volume of trading in exchanges,” he maintained.
NABARD FOCUS ON FPO
NABARD has floated more than 4000 farmers produce organizations and it is now for an analytics tool to compile data on farm products that are offered by these organizations. Suseela Chintala, general manager-OFDD at NABARD, said the bank looks at the entire value chain preharvest and post-harvest and assesses what reaches to the customers.
“We are focusing on making Farmer Producer Organizations, or FPOs a robust credit model. We also have a subsidiary ‘Nabkisan’, which provides credit to farmers and assesses their consumption needs and allied activities. We are a national implementation entity for climate change, and we will develop it into a largescale operation with the collaboration of the government. We intend to incorporate data on water requirements, stress that farmers undergo as a result of lack of water, climate changes as well lifestyle changes which will impact farming activities. We have created organizations like self-help groups, child liability groups and farmers clubs. FPOs may not have immediate relevance, but in the coming 10 years banks and financial
services organizations will be lending to FPOs on a large scale. Ideally, an FPO will be a collective of 1000 farmers,” says Suseela Chintala.
Chanpreet Singh, group EVP - Rural Retail Banking, Yes Bank, says the bank has been working a technology intervention in the agri finance segment and a lot of work has been done. “We are looking at combining the work done in creating isolated solutions and create seamless solutions for farmer onboarding. Our onboarding of a customer starts with visiting the customer. At present, this is a huge manual exercise. In the proposed solution, the field person can tag the location information through a mobile solution. . Satellite data provides us information about proxy moisture conditions and crop patterns, and this give us confidence and helps us to rectify the information given by the field person. This definitely, improves the ability to take decision “he says.
SATELLITE AS A TOOL
Prateep Basu, co-founder and chief strategy officer at SatSure, outlined the services that the company provides in order to help financial services institutions take informed decisions on lending to farmers.
He said the discussion is around satellite - how to do yield estimation at the farm level which was not happening. “Knowledge e ngi neer i ng wi l l hel p companies to understand loan cases which have been defaulted and companies will get lot of insights. The role of technology is to bring about human touch elements in customized service plans for individuals, based on the integration of multiple data points” says he.
He says SatSure provides services to create banking solutions that drive efficiency through banking decisions. “Today different data points are available on a single platform. Companies have different open source data enterprises for feeding different business processes. Some processes can be weather-driven, some market data-driven or asset or portfoliodriven data which needs a unified data system for efficient lending decisions.” says Prateep Basu.
SatSure’s core capacities have been set on satellite image analytics. Prateep Basu says when one looks at a large area, not everything can be covered by foot and the cost of operation increases. That’s where satellite comes into picture.
“We are one of the first users of IBM graph. The entire point of building trustful data is to increase resiliency towards finance,” he adds.
He says satellites do facilitate information of impact like weather on farming practices or the behavior of farmers. “There are roadblocks in land record management and there is no solution available to banks for these roadblocks,” says he.
HARVEST IS IMPORTANT
Prabakaran S, head - Wholesale Agri Risk at RBL Bank feels agri business for a bank is not about an excel sheet data. On the contrary, it depends on how the harvest happens. In agriculture lending, he says, it is not only about crops, it is also about allied activities, like dairy, cattle, poultry and such other things. These all increase the actual productivity of the farmers. “When you provide lending to your customer, you should have complete information about the farmers and their localities. Cash is the biggest pain point, there is need to channelize cash flows,” he adds.
According to Rajbir Chaddha, VP and head, Agri, Crop & Rural Group, HDFC ERGO General Insurance, the data provided by the
government and the crop cutting exercises usually pertain to lower units. Hence, there was always a question of ambiguity about pricing. “Fortunately, the government initiatives have improved many things in the last 3 years,” says he.
Crop insurance, he says, works when one has reinsurance and the reinsurance works only when you have data. Insurance companies are in double minds about using technology because of the viability. “At HDFC ERGO, we have a special team that help us in data interpretation,” says he.
MEETING ALL NEEDS
Manish Awasthi, AGM - Rural & Agri Business Department, Union Bank of India, says the bank has 54 centralized processing centers - Union Samriddhi
Kendras - and these centers satisfy every need of the farmers like buying car, funding a construction of a house or loans for agriculture. The needs of the farmer are to be understood, and it needs to be fulfilled. “Our initiative ‘Samporan’ has all the details of the farmers like loans availed, weather patterns, quality of soil, etc and we are expanding Samporan initiative to a pan-India level.
Sheel Ranjan, AGM, Allahabad Bank, says the bank has recently introduced ‘Kisan Pragati Kendra’ and there are 43 such centers now across India. He says the requirement of soil testing report should be removed from the list of documents needed for applying for subsidies for farmers.
COLLABORATION IS CRITICAL
Pankaj Pipariya, Sales leader - India/
South Asia, The Weather Company, emphasizes that there is a need for optimum infrastructure, technology processes and the right team to convert the noble profession of agriculture into a business. “We need the right kind of technology that is unbiased and scalable. Today, is the era of collaboration, if you do not collaborate you will not succeed. The Weather Company delivers personalized, actionable insights to consumers and businesses across the globe by combining weather data with industry-leading AI, Internet of Things (IoT) and analytics technologies. Technology is a great enabler and it is a very important factor in today’s scenario,” he adds.
Pipariya also highlights the need to adopt the Kaizen approach of continuous improvement in technology. Today, there is a cultural change approach, be it organizational or business. Change could be a transaction change or a transformational change. The middleman is the biggest asset and knowledge repository for companies.
He further adds, “The Weather Company is committed to advancing the science of weather forecasting because weather is powerful. With IBM Global High-Resolution Atmospheric Forecasting System (IBM GRAF), a high-precision, rapidly updating global weather model that updates hourly and at a 3 km resolution, we provide a clearer picture of weather activity around the globe. IBM GRAF runs on IBM POWER9™ - optimizing its super computing technology.”
Pankaj Pipariya of The Weather Company
Prateep Basu of SatSure
Participants in rapt attention to a point being made
Two of the panelists engrossed in the discussion