A shortfall in monsoon rainfall is casting fresh uncertainties over the stability of Indian banks’ agriculture loan portfolios, with lenders and analysts warning of increased risks in the months ahead. As the country’s crucial kharif crop season faces delays and rainfall deficits, the banking sector is preparing for potential asset quality concerns after a recent spike in farm-related non-performing assets (NPAs).Background: Monsoon’s critical role in Indian agri-lendingReserve Bank of India (RBI) data, agriculture accounts for a major share of rural credit, and any disruption in the monsoon cycle can have a direct impact on both farm incomes and repayment capacity.Delayed rains and kharif sowing disruptionsAniket Dani, director at Crisil Intelligence, told The Financial Express that the delayed onset of the monsoon is already disrupting kharif crop cycles. “For banks, the ability of farmers to repay is closely tied to harvest outcomes. Any significant monsoon shortfall will likely translate into visible stress in agri loan books after the kharif harvest,” he explained.Banking sector faces renewed NPA pressureState Bank of India reported agriculture gross NPAs of Rs 30,228 crore in FY26, representing 7.25% of its total agri advances. Punjab National Bank’s agri NPAs stood at Rs 18,130 crore, or about 9% of its segment, with fresh farm sector slippages far outpacing those in the corporate book.Mitigating factors: Institutional support and diversificationTamilnad Mercantile Bank’s MD & CEO Salee S Nair told The Financial Express that the sector now benefits from better irrigation coverage, wider adoption of crop insurance, and enhanced institutional mechanisms. For Tamilnad Mercantile Bank, agriculture makes up nearly 38% of its lending portfolio, yet its agriculture GNPA stands at just 0.16%, with total GNPA below 1% and provision coverage over 80%.Indian Overseas Bank’s MD & CEO Ajay Kumar Srivastava, in a Q4 FY26 earnings call cited by The Financial Express, said it was premature to estimate the full impact. He noted that the bank’s mix of retail, MSME, and corporate lending provides some insulation, allowing for a shift in focus if agriculture lending suffers in certain regions.Analysts see reduced risk of a major crisisAnil Gupta, senior vice president and co-group head for financial sector ratings at Icra, pointed out that rural household incomes have diversified, lessening exclusive dependence on farming. He added that better reservoir levels and a growing preference for short-duration crops are likely to soften the blow from a weak monsoon.El Niño conditions could have a “relatively severe” impact on 12 states during the kharif season, with large swathes of central, northern, and peninsular India remaining in the rainfall deficit category.Strategic implications for India’s banking sector
- Policy & Rural Economy
- 4 min Read
Banks brace for agri loan challenges as weak monsoon looms
Banks in India are preparing for higher risks in agriculture lending as weak monsoon conditions threaten farm incomes and asset quality. Improved institutional support may cushion the impact, but vigilance remains crucial.