The Curious Case Of Rising Bank Debt To Agriculture

However, with agriculture non-performing assets having receded to 6.2% now, from over 10%, confidence among bankers has improved.

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Agricultural credit is on the rise at a time when its contribution to India's growth story has been falling. Bank credit towards agriculture has risen to over Rs 20 lakh crore in 2024, rising 21% year-on-year in May, according to Reserve Bank of India's monthly sectoral data.

Between FY20 and FY23, agricultural growth has fallen to mid-single digits from low double digits, a report by Citi Research on Thursday noted. In the past, especially in FY09 and FY15, such situations have directly led to a sharp rise in delinquencies for banks. The increase in stress typically comes with a lag of 12-24 months.

However, with agriculture non-performing assets having receded to 6.2% now, from over 10%, confidence among bankers has improved.

So what's driving all this agri credit? Here's what the brokerage has to say.

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Gold Rush

A deep dive into the growth figures shows that the rising agricultural credit is being driven by Kisan Credit Card and gold loans from banks. Currently, KCC accounts for a little over 30% of outstanding bank credit, 25-30% is from gold loans, 10% from microfinance, tractor loans at 3-4% and indirect loans at 12-13%.

"Though KCC portfolio dominates agri credit, its growth has lagged significantly (mere 3% CAGR over FY17-23) and its share in agri credit contracted to 32% in FY23 from 47% in FY17," the Citi report said.

Commercial banks' share in overall KCC loans has fallen to 58.5%, compared to nearly 66% earlier. The lost share of KCC has primarily moved in favor of agri gold loans, according to the brokerage.

While State Bank of India reported 16% compounded annual growth rate in gold loans between FY22 and FY24, Bank of Baroda and Bank of India reported 25-31% growth.

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What's Changing?

Interestingly, private banks have outpaced public sector peers in the agricultural loan space. Private and small finance banks have gained 570 basis points worth market share between FY17 and FY23, Citi said.

Generally, agricultural credit is perceived to be led by rural and semi-urban regions, given the financing requirements in those areas. However, over the past two years, agricultural credit in metros has clocked over 19% CAGR, outpacing overall agricultural credit growth by more than 400 bps, Citi said.

Additionally, loans with ticket sizes ranging between Rs 10-15 lakh have gained more than others, showing 36% CAGR growth in the last two years. In comparison, loans with ticket sizes between Rs 5-10 lakh showed a two-year CAGR of 17%.

Ticket size trends become more relevant, particularly in the context that MFI and household sectors have led growth.

While agricultural credit growth is picking up, there is ample evidence of regional disparity, Citi said. Tamil Nadu and Andhra Pradesh, that constitute almost 30% of systemwide agricultural credit, have witnessed 400-600 bps higher growth than pan-India average.

Other states growing at a pace faster than pan-India include Chhattisgarh and Odisha. Contrary to this trend, Uttar Pradesh, Punjab, West Bengal, Uttarakhand, Rajasthan and Haryana have seen agri credit growth at a modest pace.

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