India Ratings sees NPAs rising by 0.4%

Tribune News Service

New Delhi, April 24

The asset quality of India’s agricultural credit could be significantly hit by crop damage due to untimely hail and rain in March 2015, says India Ratings.

The last month's unseasonal rains will lead to an increase in the gross non-performing assets (NPAs) of the banking system by up to 0.40 per cent due to a rise in the total agricultural advances, it said.

The NPA ratio of the agri-loan portfolio could double for some banks, though the reduction of overall return on asset may be muted at about 10% of the profitability of government banks.

The unseasonal rains followed one of the weakest and most deficient monsoons that the country had experienced in FY15 which has heightened its impact.

Agricultural loans grew 16% in FY15 and have contributed 25% to incremental credit growth since March 2014. With delinquencies in the agri-loan portfolio likely to rise, they will add to the already stressed assets of banks at 10.6% of loans as on December 2014.

The states highly impacted by these excess rains make up a significant portion at 37% of the overall agricultural credit extended by banks in FY14, the report said.

India Ratings estimates that system-wide agricultural NPAs as a percentage of total agricultural advances will rise to 16.9% by FY16 from 13% in FY14 as a direct result of the unseasonal rains.

The impact of the unseasonal rains will be felt with a lag, as NPA recognition policies for agricultural loans (one or two crop seasons past due) differ from those of corporate or retail loans (90 days past due).

The report says governmental support through subsidies may not significantly benefit banks as the amount of support (Rs 2,500/acre) to be provided is marginal compared with the extent of the losses (Rs 20,000/acre). Also, it is unlikely that the support money will be used by impacted farmers to repay bank loans, the report said.