Despite the progress of the monsoon belying the forecast of a weak rainfall this year, bankers fear that bad loans from agriculture book would continue to remain high.
Almost 80% of India has received excess or normal rain so far in June, allowing farmers to begin sowing of rice, cotton, corn and soybeans in the south, west and central regions, according to the India Meteorological Department.
Bankers, however, are not sanguine about their farm loan portfolio yet. “It is too early to say; we have to see how the monsoon pans out. We are working towards improving the quality of the portfolio in the coming quarters,” said B Sriram, managing director, SBI.
Bankers said the impact of unseasonal rains on the rabi output could result in loan defaults. It is still too early to rejoice on the strong monsoon as the key months, July and August, need to witness adequate rainfall for a robust kharif output.
“This quarter is unlikely to see a big improvement in agri bad loan situation since unseasonal rains have done some damages,” said the executive director at a public sector bank. “Rural demand is also weak,” he added.
In the past four quarters, the agriculture sector has been one of the biggest contributors of bad loans for banks. As of March 2015, banks had disbursed an outstanding Rs 7.8 lakh crore to the agriculture sector, a growth of 15% year-on-year. “Most PSU banks have aggressively grown their agri loan books over the past couple of years, which could lead to higher slippages in the next few quarters,” said HSBC in its report.
Although in absolute terms, the agriculture bad loan stock has shrunk for big public sector banks baring Bank of India, the share of farm loans in the overall bad loan portfolio remains high. Almost 5% of agricultural loans slip for most banks, which is higher than the overall gross non-performing asset ratio of around 4-4.5% for most banks.
Large public sector lenders, such as SBI, Bank of Baroda, Punjab National Bank, Union Bank of India and Bank of India, have all been aggressive lenders to farmers.
Around 5% of agricultural loans of the largest lender, SBI, went bad in 2014-15. The ratio of bad loans to the total farm loan portfolio of other public sector lenders such as Bank of Baroda, Bank of India, Union Bank of India and Central Bank of India too is around 5-5.5%.
SBI has been taking specific steps to contain the slippages of its farm loan portfolio. One of the measures it introduced last year was an one-time-settlement wherein the borrower can close a loan by making a one-time payment agreed by the bank. “We are getting good response for this scheme,” said Sriram.