Expectation of an above-normal monsoon this year is not just a piece of good news for farmers, it has also boosted the sentiment in the banking sector. With the India Meteorological Department forecasting an above-normal monsoon, banks are expecting a rise in demand for agricultural loans. Analysts are expecting around 25% increase in banks’ agri loan portfolios.
“We expect an increase in demand for agriculture loans. With the advent of good monsoon, demand is likely to be higher for working capital requirements for crop production activities, loans for buying farm equipment and term loans and working capital for allied agriculture activities,” said Bank of Baroda. The demand is expected to be higher for loans for creation of agriculture storage and financing for food and agro-processing, added the bank.
Agriculture loans have seen a consistent rise over the past few years. Bank loans to agriculture and allied activities grew 15.4% in 2022-23, according to the Reserve Bank of India data.
In the first eleven months of the previous fiscal, banks’ loan to agriculture and allied activities rose 20.4% to reach `20.4 trillion. With a better rain forecast, analysts expect the growth in agri loans to touch 22-24% during the June-September period.
“We expect the growth in agricultural loans to be higher this year on account of expectation of a good monsoon, given that the agricultural sector in India is still monsoon dependent,” Vivek Iyer, partner, Grant Thornton Bharat, told FE. “With food security being an important part of the national agenda and the focus of the financial services sector aligned to the same, we expect at least a 25% increase…” he added.
According to bankers, the demand for agri loans begins to rise from June when the monsoon kicks in and remains high till September.
“The impact of good monsoon will be visible in the first and the second quarter results of the bank,” a banking analyst of a brokerage firm told FE. “Good monsoon is good news for banks not only for agriculture loans, but also for the broader rural economy, as higher income will boost expenditure and create additional demand.”
According to the analyst, the impact of above-normal monsoon will also be seen in other types of loans such as vehicle loans and personal loans in the coming quarters, as higher income due to better harvest will encourage people to buy vehicles and home appliances.
Under agri loans, banks offer crop loans, which are primarily utilised for purchasing seeds, fertilisers, pesticides, and other inputs required for crop production. Crop loans are usually sanctioned for a duration of one agricultural season and are repaid after the harvest. Lenders also offer loans to buy tractors, equipment and livestock.
