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Banks fear agri NPAs as reservoirs dry up

drought hit india Updated: Apr 28, 2016 12:12 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times

Public sector banks fear agri loans turning bad as several areas face drought-like situation.(HT Archive)

Public sector banks (PSBs), which have started giving out agriculture loans to farmers for Kharif crops, are keeping their fingers crossed with several water reservoirs in the country drying up, and many districts experiencing drought-like situation due to lack of rains in the previous years. About 40% of the total agriculture loans go towards kharif crops.

While the Indian Meteorological Department (IMD) has predicted an above-average monsoon for 2016-17, sources said the next few weeks will be crucial as the repayment of agriculture credit could be impacted even in case rains are not evenly spread. That apart, loans given under the Mudra programme, could also come under pressure in case of delayed or insufficient rains.

“There is no need to press the panic button immediately, but the pattern of rains in the next few weeks will determine the overall pattern of monsoons. If we get uneven rains, it may turn out to be a big problem… rains will also determine whether water reservoirs are being refilled,” a senior official at a mid-sized government bank told HT.

Farm loans have been one of the main reasons for the rising non-performing assets (NPAs) — loans that do not yield returns— at public sector banks. NPAs are currently over 6% of total advances.

Economists, however, said it was too early to come to any conclusion. “Though most of the lending for the kharif crops take place in March, the current drought-like situation will not add any further pressure to the NPA level...we will wait and watch before drawing any conclusion,” said Soumya Kanti Ghosh, chief economic adviser, State Bank of India.

The RBI recently asked banks to set aside provisions for losses on `12,000-crore foodgrain-related loans issued to the government of Punjab.