NPAs in agriculture sector stay high amid loan-saturation concerns

Bad loans in the agriculture sector remain elevated, with several public-sector banks (PSBs) reporting higher slippages in the April-June quarter of FY26. For many banks, non-performing assets (NPAs) in farm lending were 5 per cent or more, with some nearing double digits.

 

The stress reflects growing concern over loan saturation, with some PSBs reporting lower single-digit year-on-year (Y-o-Y) growth.

 

“As agri loans are mandatory for priority-sector lending requirements, there is a tendency to lend more, especially to small and marginal farmers, who often failed to repay,” says a Bank of Maharashtra official. “This has overheated the segment. Further, writeoffs in agri loans are usually difficult.” 

 

The Pune-based bank’s farm NPAs rose from ₹2,512 crore in June last year to ₹3,166 crore this year, accounting for 9.65 per cent of its farm loans. The bank reported just 3 per cent Y-o-Y growth in agri loans, while loans to this sector declined sequentially.

 

Union Bank of India, Punjab & Sind Bank, and Uco Bank also reported high NPA ratios. Kolkata-based Uco Bank’s farm bad loan ratio remained elevated at 10.81 per cent, though it declined compared to the year-ago period.

 

According to the Reserve Bank of India (RBI) data, agriculture had the highest gross NPA ratio at 6.2 per cent as of September 2024. The share of the priority sector in total GNPA of scheduled commercial banks increased to 57.3 per cent at the end of March 2024, up from 51.1 per cent a year ago. NPAs in the priority sector were led by agricultural defaults, RBI’s Trend & Progress report said. 

 

Among private banks, HDFC Bank reported farm-sector slippages of about ₹2,200 crore.

 

Farm-loan growth remained weak for some of the lenders that announced Q1 numbers. Canara Bank, Bank of Maharashtra, and Punjab & Sind Bank saw around 3 per cent growth during the first quarter, while Union Bank’s loans to the sector shrank 9 per cent. 

 

“There may be some saturation in Kisan Credit Cards (KCCs) because everybody is offering them,” says K Satyanarayana Raju, managing director (MD) and chief executive officer (CEO) of Canara Bank. “But at the same time, new borrowers will always be there to lend to in rural areas, as around 61 per cent of our branches are in rural and semi-urban areas. We may not encounter such problems. Of course, slippages will be there in agriculture, but that is well within our risk appetite.”

 

Bank of Baroda is among the lenders that have bucked the trend, reporting 16.2 per cent growth in farm loans while reducing NPAs to 4.85 per cent from 5.31 per cent a year earlier.

 

“Agri loans registered growth of 16 per cent and NPAs were contained. Going ahead, advances towards the agri sector will continue to maintain growth of 13-14 per cent,” says Debadatta Chand, MD & CEO, Bank of Baroda.