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Resource centre on India's rural distress
 
 

Low rainfall may affect bank non-performing assets

-Livemint.com/ India Ratings Report by India Ratings & Research

Non-performing loan ratio of agriculture loan portfolio could double for some banks

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

The non-performing loan (NPL) ratio of the agriculture loan portfolio could double for some banks, though the reduction of overall return on average assets (RoA) may be relatively muted at 3-6 basis points (bps; one basis point is one-hundredth of a percentage point). March was the wettest month in India in 48 years. States affected, in varying degrees, include Rajasthan, Madhya Pradesh, Gujarat, Jammu and Kashmir, Uttar Pradesh and Maharashtra, which make up the majority of wheat producing states in the country. Industry experts indicate that wheat output is predicted to fall by 8% due to the rains, which will be the largest decline in production since 2002.

The unseasonal rains immediately followed one of the weakest and most deficient (12%) monsoons that the country had experienced in FY15, which has heightened its effect. The situation may worsen if this year’s monsoon is also below normal. The Indian Meteorological Department estimates a 33% chance of the FY16 monsoon being 90% or below of normal. Banks have recently been extending agricultural loans rather aggressively, on account of the governments’ promotion of agricultural loans, and also given lower credit demand in other sectors. Regional banks with a large rural presence in the affected regions are at a high risk.

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