Finance

Agriculture, MSME bad loans rise in FY21 even as banks report overall fall in NPAs

While the banking sector managed to bring down overall non-performing assets (NPAs) in the financial year 2021, the agriculture segment and the MSME sector reported a rise in bad loans. Agriculture NPAs rose by 9,355 crore to Rs 1,36,019 crore during the fiscal from Rs 1,26,664 crore in the previous year.

Farm sector NPAs now constitute 17.4 per cent of the total NPAs of the banking sector while in the previous year it was 15.07 per cent, according to Reserve Bank of India (RBI) data. The rise also coincided with the farmers’ agitation in the country against the introduction of farm laws in the Parliament.

Even as total NPAs of banks declined by 7.1 per cent to Rs 780,085 crore during the year, agricultural NPAs rose by 7.38 per cent, indicating the stress in the segment. Public sector banks accounted for Rs 1,15,281 crore of agri loans as against Rs 1,11,571 crore in the previous year. Private banks’ NPAs in the segment rose to Rs 18,900 crore from Rs 14,462 crore previously.

An NPA is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.

Total farm sector loan outstanding was Rs 13.84 lakh crore in FY21. Credit to agriculture and allied activities continued to be robust at 10.4 per cent in November 2021 as compared to 7.0 per cent in November 2020, as per the latest RBI data. The share of co-operative banks in ground level credit to agriculture has been declining consistently as SCBs made inroads in this segment. Credit extended by non-banking finance companies to the agriculture sector has been declining. It declined from Rs 62,722 crore in FY19 to Rs 49,012 crore in FY20 and Rs 37,892 in FY 21.

“Covid pandemic could have played a part in the rise in farm sector bad loans as the economy declined and demand for goods also fell. Besides, write-offs in other loans and restructuring proposals were higher when compared to farm loans,” said a banking source.

On the other hand, signalling the rising stress in the medium, small and micro enterprises (MSMEs), gross NPAs in the sector shot up to Rs 1,28,502 crore in fiscal 2021 from Rs 1,08,704 crore in the previous year, a rise of Rs 19,798 crore. Thousands of MSMEs had downed shutters when the first Covid wave hit the country in March 2020.

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The Financial Stability Report of the RBI said MSME portfolio of public sector and private banks indicates accumulation in NPA and SMA-2 categories in September 2021 relative to March 2021. NPA level was 18.5 per cent as of September 2021 as against 16.8 per cent in March 2021.

Credit to the MSME segment slowed down (year-on-year) by the end of September 2021 vis-à-vis March 2021. The decline was particularly noticeable in the sub-Rs 25 crore ticket size across major bank groups. Under the Emergency Credit Line Guarantee Scheme (ECLGS), loans amounting to Rs 2.82 lakh crore were sanctioned till November 12, 2021, of which Rs 2.28 lakh crore was disbursed (Rs 1.94 lakh crore by scheduled commercial banks, forming 20.6 per cent of the incremental credit during the period), it said.

The rise in MSME NPAs is despite the government launching the ECLGS scheme for MSME sector to provide relief to the sector amidst the Covid-19 pandemic in May 2020. “We estimate almost 13.5 lakh MSMEs accounts were saved due to ECLG scheme (including restructured). Almost 93.7 per cent of such accounts are in micro and small category. In absolute terms, MSME loan accounts worth Rs 1.8 lakh crore were saved from slipping into NPA during the period. This is equivalent to 14 per cent of the outstanding MSME credit being saved from becoming NPA,” says a research report from State Bank of India.

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