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

Elevating agriculture lending targets aggressively in current several years has led to overleveraging. Deterioration in credit history tradition on the back of farm mortgage waivers and diversion of funds (as pointed out by the RBI’s report on agriculture credit history very last September)is also a expanding trigger for be concerned.

The March quarter effects of PSBs advise that all of this has led to a sharp increase in delinquencies in agri financial loans. For instance, Central Financial institution of India has noticed its agri NPA ratio spike to fourteen.seven for every cent in FY20, from 9.seven for every cent in FY19. Financial institution of Maharashtra’s agri NPA stood at virtually 26 for every cent of its agri financial loans in FY20, up from 19.3 for every cent in FY19. Union Financial institution, which experienced agri NPAs at just 6 for every cent of financial loans in FY18, reported 11.eight for every cent NPA ratio in FY20.

SBI, the country’s biggest loan provider, has also noticed agri NPA ratio climb to fifteen.eight for every cent in FY20, from 11.2 for every cent two several years ago. For HDFC Financial institution, also, when its total asset high quality has been less than look at, it has been witnessing signs of pressure in its agri portfolio. ICICI Bankhas also been highlighting bigger delinquencies in the kisan credit history card portfolio for quite a few quarters.

Bankers have been stating that most of the farmers have turn into overleveraged in excess of a period of time of time because of to restructuring and doling out of supplemental funding. The deterioration in credit history tradition, because of to mortgage waivers introduced by numerous State governments, has produced matters worse.

Overshooting agri lending targets

Credit history stream into agriculture has been driven by plan thrust, notably by means of lending targets, curiosity subvention scheme, and priority sector lending stipulations.

Agri lending targets have been elevated substantially in excess of the previous three to 4 several years. Concerning FY17 and FY20, agri lending goal has long gone up by about fourteen for every cent annually to ₹13.five-lakh crore. In the Spending plan 2020-21, the Centre experienced established a significantly bigger agriculture lending goal of ₹15-lakh crore for FY21.

Financial institutions have been surpassing the agriculture lending targets in excess of the several years by a notable margin. But anecdotal evidence from the FY20 figures of some PSBs suggests that banking institutions have been careful towards lending to the agri section. For instance, SBI reported a meagre 1.seven for every cent progress in agri financial loans in FY20, as the financial institution sought to clear up its e-book and reinforce its checking and selection system. Financial institution of Maharashtra noticed a four.eight for every cent drop and Central Financial institution 3.five for every cent slide in agri financial loans in FY20. In accordance to a response to a question elevated in Rajya Sabha recently, towards the goal of ₹11-lakh crore in FY19, banking institutions lent about ₹12.fifty six-lakh crore in FY20 banking institutions lent about ₹10.33-lakh crore (up to December 2019) towards a goal of ₹13.five-lakh crore.

It will be vital to see regardless of whether banking institutions have been capable to overshoot the agri lending targets as in the preceding several years. Crucial, amid the persistent wariness towards agri lending (to keep NPAs less than look at), surpassing the formidable ₹15-lakh crore goal for FY21may not be that uncomplicated.