Agricultural credit score is on the rise at a time when its contribution to India’s progress story has been falling. Financial institution credit score in the direction of agriculture has risen to over Rs 20 lakh crore in 2024, rising 21% year-on-year in Could, in response to Reserve Financial institution of India’s month-to-month sectoral knowledge.
Between FY20 and FY23, agricultural progress has fallen to mid-single digits from low double digits, a report by Citi Analysis on Thursday famous. Previously, particularly in FY09 and FY15, such conditions have instantly led to a pointy rise in delinquencies for banks. The rise in stress sometimes comes with a lag of 12-24 months.
Nonetheless, with agriculture non-performing belongings having receded to six.2% now, from over 10%, confidence amongst bankers has improved.
So what’s driving all this agri credit score? Here is what the brokerage has to say.
Gold Rush
A deep dive into the expansion figures exhibits that the rising agricultural credit score is being pushed by Kisan Credit score Card and gold loans from banks. At the moment, KCC accounts for somewhat over 30% of excellent financial institution credit score, 25-30% is from gold loans, 10% from microfinance, tractor loans at 3-4% and oblique loans at 12-13%.
“Although KCC portfolio dominates agri credit score, its progress has lagged considerably (mere 3% CAGR over FY17-23) and its share in agri credit score contracted to 32% in FY23 from 47% in FY17,” the Citi report stated.
Industrial banks’ share in general KCC loans has fallen to 58.5%, in comparison with practically 66% earlier. The misplaced share of KCC has primarily moved in favor of agri gold loans, in response to the brokerage.
Whereas State Financial institution of India reported 16% compounded annual progress price in gold loans between FY22 and FY24, Financial institution of Baroda and Financial institution of India reported 25-31% progress.
What’s Altering?
Apparently, non-public banks have outpaced public sector friends within the agricultural mortgage house. Non-public and small finance banks have gained 570 foundation factors value market share between FY17 and FY23, Citi stated.
Typically, agricultural credit score is perceived to be led by rural and semi-urban areas, given the financing necessities in these areas. Nonetheless, over the previous two years, agricultural credit score in metros has clocked over 19% CAGR, outpacing general agricultural credit score progress by greater than 400 bps, Citi stated.
Moreover, loans with ticket sizes ranging between Rs 10-15 lakh have gained greater than others, exhibiting 36% CAGR progress within the final two years. As compared, loans with ticket sizes between Rs 5-10 lakh confirmed a two-year CAGR of 17%.
Ticket dimension tendencies turn out to be extra related, notably within the context that MFI and family sectors have led progress.
Whereas agricultural credit score progress is selecting up, there’s ample proof of regional disparity, Citi stated. Tamil Nadu and Andhra Pradesh, that represent virtually 30% of systemwide agricultural credit score, have witnessed 400-600 bps greater progress than pan-India common.
Different states rising at a tempo quicker than pan-India embrace Chhattisgarh and Odisha. Opposite to this development, Uttar Pradesh, Punjab, West Bengal, Uttarakhand, Rajasthan and Haryana have seen agri credit score progress at a modest tempo.
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