Agri loans emerge as biggest asset quality risk for Indian banks
Agricultural loans in India are currently facing significant asset-quality risks, with bad-loan ratios surpassing other sectors. The gross non-performing asset ratio for agricultural loans is at 5.1%, compared to 1.5% for industry and services. Factors such as a poor monsoon have contributed to this situation, although agricultural bad loans have declined since 2020-21. Various banks have…
Agricultural loans have become the biggest asset-quality risk for Indian banks, with their bad-loan ratio significantly higher than industry, services, and retail loans, according to BMI Research, a division of Fitch Group. In the second quarter of 2026, the gross non-performing asset ratio for agricultural loans was recorded at 5.1%, compared to 1.5% for industry, 1% for services, and 1% for retail loans, respectively.
Despite a broader improvement in loan books, agricultural bad loans have declined from over 10% during 2020-21 but remain a clear outlier. The vulnerability has increased since India's southwest monsoon ended 12.6% below its long-period average, marking the weakest rainfall since 2015. Bank of Baroda saw a 11.6% rise in agricultural NPAs year-on-year to ₹9,128 crore, accounting for 34% of total slippages, while Canara Bank reported agricultural loan slippages of ₹687 crore, constituting nearly 37% of overall second-quarter slippages.
However, bank executives remain optimistic, stating that there are measures in place to alleviate affected borrowers and that the impact of the weak monsoon may take time to materialize in reported numbers due to the classification of agricultural loans as non-performing being linked to crop seasons.
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