Agri bad loans shoot up for banks in FY20 as lending targets rise sharply

Boosting agriculture lending targets aggressively in new yrs has led to overleveraging. Deterioration in credit

Boosting agriculture lending targets aggressively in new yrs has led to overleveraging. Deterioration in credit history tradition on the back of farm personal loan waivers and diversion of funds (as pointed out by the RBI’s report on agriculture credit history past September)is also a expanding trigger for fear.

The March quarter effects of PSBs counsel that all of this has led to a sharp rise in delinquencies in agri loans. For instance, Central Bank of India has found its agri NPA ratio spike to 14.7 for every cent in FY20, from nine.7 for every cent in FY19. Bank of Maharashtra’s agri NPA stood at virtually 26 for every cent of its agri loans in FY20, up from 19.three for every cent in FY19. Union Bank, which had agri NPAs at just 6 for every cent of loans in FY18, noted 11.eight for every cent NPA ratio in FY20.

SBI, the country’s major loan provider, has also found agri NPA ratio climb to fifteen.eight for every cent in FY20, from 11.2 for every cent two yrs back. For HDFC Bank, too, while its total asset high quality has been less than verify, it has been witnessing signals of strain in its agri portfolio. ICICI Bankhas also been highlighting larger delinquencies in the kisan credit history card portfolio for quite a few quarters.

Bankers have been stating that most of the farmers have develop into overleveraged more than a time period of time due to restructuring and doling out of extra funding. The deterioration in credit history tradition, due to personal loan waivers introduced by several Point out governments, has designed issues even worse.

Overshooting agri lending targets

Credit rating flow into agriculture has been pushed by policy thrust, significantly by means of lending targets, curiosity subvention plan, and precedence sector lending stipulations.

Agri lending targets have been raised substantially more than the previous 3 to four yrs. Amongst FY17 and FY20, agri lending target has long gone up by about 14 for every cent on a yearly basis to ₹13.5-lakh crore. In the Spending plan 2020-21, the Centre had set a much larger agriculture lending target of ₹15-lakh crore for FY21.

Financial institutions have been surpassing the agriculture lending targets more than the yrs by a notable margin. But anecdotal evidence from the FY20 figures of some PSBs implies that financial institutions have been careful towards lending to the agri segment. For instance, SBI noted a meagre one.7 for every cent expansion in agri loans in FY20, as the bank sought to clean up up its ebook and fortify its checking and assortment procedure. Bank of Maharashtra saw a four.eight for every cent decline and Central Bank three.5 for every cent drop in agri loans in FY20. According to a response to a query raised in Rajya Sabha recently, from the target of ₹11-lakh crore in FY19, financial institutions lent about ₹12.fifty six-lakh crore in FY20 financial institutions lent about ₹10.33-lakh crore (up to December 2019) from a target of ₹13.5-lakh crore.

It will be vital to see no matter whether financial institutions have been able to overshoot the agri lending targets as in the former yrs. Critical, amid the persistent wariness towards agri lending (to hold NPAs less than verify), surpassing the formidable ₹15-lakh crore target for FY21may not be that quick.