Raising agriculture lending targets aggressively in recent years has led to overleveraging. Deterioration in credit culture on the back of farm loan waivers and diversion of funds (as pointed out by the RBI’s report on agriculture credit last September)is also a growing cause for worry.

The March quarter results of PSBs suggest that all of this has led to a sharp rise in delinquencies in agri loans. For instance, Central Bank of India has seen its agri NPA ratio spike to 14.7 per cent in FY20, from 9.7 per cent in FY19. Bank of Maharashtra’s agri NPA stood at nearly 26 per cent of its agri loans in FY20, up from 19.3 per cent in FY19. Union Bank, which had agri NPAs at just 6 per cent of loans in FY18, reported 11.8 per cent NPA ratio in FY20.

SBI, the country’s largest lender, has also seen agri NPA ratio climb to 15.8 per cent in FY20, from 11.2 per cent two years ago. For HDFC Bank, too, while its overall asset quality has been under check, it has been witnessing signs of stress in its agri portfolio. ICICI Bankhas also been highlighting higher delinquencies in the kisan credit card portfolio for several quarters.

Bankers have been stating that most of the farmers have become overleveraged over a period of time due to restructuring and doling out of additional funding. The deterioration in credit culture, due to loan waivers announced by various State governments, has made matters worse.

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Overshooting agri lending targets

Credit flow into agriculture has been driven by policy thrust, particularly through lending targets, interest subvention scheme, and priority sector lending stipulations.

Agri lending targets have been raised substantially over the past three to four years. Between FY17 and FY20, agri lending target has gone up by about 14 per cent annually to ₹13.5-lakh crore. In the Budget 2020-21, the Centre had set a much higher agriculture lending target of ₹15-lakh crore for FY21.

Banks have been surpassing the agriculture lending targets over the years by a notable margin. But anecdotal evidence from the FY20 numbers of some PSBs suggests that banks have been cautious towards lending to the agri segment. For instance, SBI reported a meagre 1.7 per cent growth in agri loans in FY20, as the bank sought to clean up its book and strengthen its monitoring and collection system. Bank of Maharashtra saw a 4.8 per cent decline and Central Bank 3.5 per cent fall in agri loans in FY20. According to a response to a query raised in Rajya Sabha recently, against the target of ₹11-lakh crore in FY19, banks lent about ₹12.56-lakh crore; in FY20 banks lent about ₹10.33-lakh crore (up to December 2019) against a target of ₹13.5-lakh crore.

It will be critical to see whether banks were able to overshoot the agri lending targets as in the previous years. Important, amid the persistent wariness towards agri lending (to keep NPAs under check), surpassing the ambitious ₹15-lakh crore target for FY21may not be that easy.

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