Industry Odisha Bureau, Oct 19: Farm loans are losing share in banks’ credit books. Lenders are turning cautious on rural exposure amid drought and El Niño concerns.
Farm loans are losing share in the credit books of several Indian lenders. September-quarter results show agricultural credit shrinking or trailing overall loan growth. Banks and non-banking financial companies (NBFCs) are turning cautious on rural exposure. Executives cite deficient rainfall and El Niño as key concerns.
The trend takes different forms. Some lenders cut farm loans outright. Others grew them, but more slowly than total advances. In both cases, agriculture accounts for a smaller slice of lending.
RBL Bank recorded the steepest fall. Its agricultural loan book shrank nearly 12% year on year to ₹1,367 crore. Farm credit now makes up 0.96% of advances, down from 1.54%. The lender was among those most affected by drought in Maharashtra. The state government has declared drought in 305 sub-districts.
Federal Bank’s farm loans fell nearly 3% to ₹8,065 crore. Their share of advances dropped 50 basis points to 2.7%. Managing director KVS Manian said the bank had chosen not to push agricultural lending. He said Federal is watching El Niño, geopolitics, interest rates and inflation.
ICICI Bank’s agriculture book grew just 1.7% to ₹32,333 crore. It stood at ₹31,799 crore a year earlier. Such modest growth suggests restraint rather than retreat.
Axis Bank and HDFC Bank bucked the slowdown. Axis Bank’s farm-loan book grew 20% year on year. HDFC Bank’s rose 6.5% to about ₹1.3 lakh crore. Even so, farm loans lost share at both banks. At Axis, the share slipped to 8.9% from 9.3%. At HDFC Bank, it fell to 4% from 4.43%. Total lending simply grew faster than farm credit.
NBFCs show similar caution. L&T Finance’s farmer finance disbursements fell 1% to ₹1,643 crore. Their share of total disbursements dropped to 6.8% from 8.7%. These are fresh loans issued, not outstanding balances like the bank figures. Chief executive Sudipta Roy said a monsoon overhang in July and August prompted restraint. The lender chose not to push its rural distribution hard, he said.
Rainfall shortfalls hit lenders through several channels. Poor rains can cut crop yields and farm incomes. That weakens borrowers’ ability to repay and dampens rural spending. The cumulative rainfall deficit was reported at around 12.6%. El Niño, a Pacific warming pattern, often weakens India’s monsoon. The year has also been described as a super El Niño year.
The stress is uneven. Siddharth Rajpurohit of Systematix Group said the problem centres on Maharashtra, Karnataka and Andhra Pradesh. Lenders focused on those states face the sharpest impact, he said. HDFC Bank officials linked the varied outcomes to uneven rainfall deficits. They expect kharif yields to broadly track sowing, despite a 1.05% smaller sown area.
Economists say the Rabi season is the next test. Further rain shortfalls could hurt winter sowing and crop yields. That would shape rural loan demand and repayment capacity. Lenders must protect asset quality without curbing farmers’ access to credit. Whether today’s caution proves temporary will depend on the weather and crop outcomes.
