Erratic rainfall in some states may dampen asset quality of banks’ farm loans in Q2

Agri loan

Erratic rainfall in some states in India is posing a risk to the asset quality of agriculture loans of banks and may even lead to an increase in non-performing assets (NPA) in the second quarter of the current financial year, bankers Moneycontrol spoke to, said on condition of anonymity.

“We have become uncertain over agriculture loans in Q2 after some parts of the country received excess rainfall leading to crop damages, which could increase the risk of NPAs,” said a senior banker with a large state-owned bank.

In the last few months, certain states in India have recorded excessive to very excessive rainfall, impacting kharif output. The heavy downpours have caused flooding and waterlogging in agricultural fields, especially during the critical growth stages of the kharif crop season.

Rain misery 

States such as Punjab, Himachal Pradesh, Uttarakhand, and parts of Maharashtra, Assam and Haryana have been impacted by floods. These are states where paddy (Rice), maize, jowar, bajra, cotton, sugarcane, groundnut, pulses, millets, peanuts and tur, among others, are grown.

According to the IDFC First Bank Economics Research report, from June to September 17, 49 percent of the country by area has received normal rainfall. In terms of key food grain producing states, normal rainfall was recorded in UP, West Bengal, Maharashtra, and Andhra Pradesh. By share in food grain production, the states recording normal rainfall account for 45 percent.

Meanwhile, excess rainfall was recorded in MP, Punjab, Rajasthan (large excess), Haryana and Telangana. States that have received excessive to very excessive rainfall account for 44 percent share in food grain production, the report added.

Maharashtra Agriculture Minister Dattatraya Bharne on September 5 said heavy rainfall across Maharashtra in August had caused widespread destruction to standing crops, affecting farmers in 29 districts. Crops on more than 14.44 lakh hectares of farmland have been damaged due to the downpour, The Indian Express reported.

Further, heavy downpour in Uttarakhand last week has led to relentless landslides. Washed-out roads and broken bridges have isolated entire villages, delaying critical supplies and emergency response in Chamoli district.

However, an Elara Capital report said that erratic rainfall in some of these states poses a risk to crop output and could delay market arrivals, warranting close monitoring. Nevertheless, the latest data indicates healthy Kharif sowings and favorable Rabi-sowing conditions, which should help contain upward pressures on inflation.

Agriculture loans, often disbursed ahead of the kharif sowing season, are due for repayment after harvest. However, with crop yields hit by floods, banks fear farmers may struggle to repay their dues.

“Even if a farmer wants to repay, a failed crop means no income. This directly translates into delays or defaults,” said another banker with a private-sector bank. Agri loan NPAs have already started increasing for some state-owned banks in the first quarter of the current financial year. According to the data compiled by Moneycontrol on NPAs in agriculture loans, State Bank of India, Bank of Baroda, Bank of Maharashtra, Punjab & Sind Bank, and Union Bank of India, have reported an increase in the first quarter of FY26.

Bankers said that the internal team will assess the on-ground situation and its impact on the asset quality in the coming quarters.