Stress in agriculture, MSME sector may impact banks’ retail loan portfolios
The slowdown in economy, particularly in rural areas, might cast a shadow on the retail loan portfolio…
The slowdown in economy, particularly in rural areas, might cast a shadow on the retail loan portfolio of banks this quarter.
According to top executives of public sector banks, stress in agriculture and micro, small and medium enterprise (MSME) sectors could lead to higher slippages in the retail loan segment in the present quarter.
“The stress in both agriculture and MSME segments are quite visible now. While in case of agriculture, the scope of additional financing is there, in case of MSME, we are more careful and the level of scanning is high,” said Ashok Kumar Pradhan, managing director and chief executive, United Bank of India.
Over the last few quarters, due to stress in the corporate loan sector, banks have been trying to focus on retail loans — comprising MSME, agriculture and personal loan segments.
“The slowdown in the economy is visible in retail lending as well now, particularly MSME and agriculture sectors. The repayment capacity is getting impacted across sectors, including retail,” said Charan Singh, said executive director, UCO Bank.
When the debt waiver scheme was announced by state governments around 2017, the agriculture sector had been seeing a persistent slowdown in terms of credit offtake.
In April 2017, Uttar Pradesh gave farm loan relief amounting to about Rs 36,400 crore. In May 2017, Maharashtra announced a farm loan waiver of Rs 30,500 crore. In June 2017, Karnataka announced a farm loan waiver of around Rs 8,200 crore. In October 2017, Punjab’s farm loan waiver was about Rs 10,000 crore. Other states that have announced a farm loan waiver or relaxation include Tamil Nadu, Andhra Pradesh, and Telangana.
“Certainly there is stress in agriculture and MSME sectors. We are going to farmers for a concentrated drive to get back payments and recycle it,” said S Harisankar, MD and CEO of Punjab & Sind Bank
According to RBI data, credit growth for agriculture and allied sectors in this financial year, till the month of May 2019, was -0.3 per cent. According to data from the Tractor and Mechanisation Association (TMA), tractor sales were down 12 per cent for July 2019 compared to July 2018.
Banks had reported high slippages in the agriculture sector in the last quarter. For example, Allahabad Bank recorded fresh slippages to the tune of Rs 2,986 crore in the last quarter. Agricultural NPAs, accounted for a major chunk of around Rs 1,135 crore, nearly 38 per cent of total slippages. MSMEs accounted for another 26 per cent.
“We are seeing some stress in the agriculture and MSME portfolio. The strain is likely to continue in Q2,” SS Mallikarjuna Rao, MD and CEO, Allahabad Bank said recently.
In the MSME segment, Pradhan Mantri Mudra Yojana (PMMY) loans have been a source of high NPAs for banks. According to a recent written reply in Rajya Sabha by minister of state for finance Shiv Pratap Shukla, as of March 31, 2018, the total value of NPAs held by public sector banks under PMMY was close Rs 7,277.31 crore.
