Agri loans may get impact due to El Nino, credit growth will remain healthy: Report
New Delhi, June 29
El Nino conditions may have some impact on agricultural loans, but are unlikely to cause major disruptions to the banking sector, while overall credit costs are expected to remain stable in FY27, according to a report by Yes Securities.
The report said it does not expect any material rise in credit costs in FY27 compared with FY26. It also does not foresee any significant one-time impact from the implementation of Expected Credit Loss (ECL) norms in FY28.
According to the report, agricultural loans remain one of the areas to watch as weather conditions evolve.
"El Nino may impact some agri loans but past experience tells us that this may not be overly disruptive, although we will monitor the possibility of a Super El Nino," the report said.
The report identified three key monitorables for the banking sector: the impact of the West Asia conflict, the impact of El Nino, and the lagged impact of trade tariffs.
The report noted that credit costs associated with unsecured loans, which had increased earlier due to a domestic economic slowdown and overheating in the segment, have started declining.
However, they may remain somewhat sticky because of a slow recovery in nominal GDP growth and the potential impact of El Nino on the microfinance sector.
MSME loans also remain a segment under watch due to possible disruptions arising from the West Asia conflict and trade-related challenges.
However, the report said it does not expect any major build-up of stress in the segment and added that the Emergency Credit Line Guarantee Scheme (ECLGS) could provide protection if required.
On the credit growth outlook, Yes Securities said overall bank lending is expected to remain reasonably healthy, supported by stronger corporate loan growth as well as sustained growth in MSME and retail loans.
The report noted that credit growth has reached around 17 per cent levels, driven by improved corporate loan growth and stronger MSME lending.
While growth may moderate somewhat by the end of the financial year, it is expected to remain broadly in the low-to-mid teens range.
The report also expects net interest income (NII) growth for its coverage banks to recover from 5.3 per cent in FY26 to 16.1 per cent in FY27 and remain at 16.1 per cent and 15.1 per cent in FY28 and FY29, respectively.
— ANI
Reader Comments
I read this with interest from my finance desk in Bangalore. The credit growth outlook is positive, but I'm cautious about the "Super El Niño" scenario. If that happens, agri NPAs could rise, especially in rain-fed regions like Marathwada. The ECL norms in FY28 add another layer of complexity for banks. Let's see.
Good to see the report acknowledging climate risks but also keeping optimism. However, as someone working with agri-loans in rural Maharashtra, I can tell you that the impact is often underestimated. Microfinance loans are especially vulnerable—farmers here take small loans for cattle or seeds, and one bad season shakes everything. The ECLGS is a good safety net, but implementation needs to be faster.
As a risk analyst from Mumbai, I think the report is a bit too optimistic. Credit growth at 17% is impressive, but much of it is driven by corporate and retail loans—agri is just a small slice. The real risk is if El Niño leads to a drought, which could hurt rural demand and indirectly affect MSMEs and consumer loans. Still, the banking system is more resilient than a decade ago.
I appreciate the report's focus on "monitorables." The West Asia conflict and tariffs are often overlooked in Indian discussions. For MSMEs tied to exports (like textiles in Tirupur), these could be big issues. And yes, let's pray El Niño doesn't become "Super." For now, I'll take the positive credit growth forecast! 😊
R Rohit P The We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.