NPAs in the MSME sector rose to 1.28.502 billion rupees in FY21. (File)
While the banking sector managed to reduce overall non-performing assets (NPAs) in fiscal 2021, the agricultural and MSME sectors saw an increase in non-performing loans. Agricultural NPAs increased by Rs 9.355 billion to Rs 1.36.019 billion during the fiscal year from Rs 1.26.664 billion in the previous year.
Agricultural NPAs now make up 17.4 percent of total banking NPAs, up from 15.07 percent last year, according to data from the Reserve Bank of India (RBI). The rise also coincided with agitation by farmers in the country against the introduction of agricultural laws in parliament.
While banks’ total NPAs fell 7.1 percent to Rs 780,085 crore over the year, agricultural NPAs rose 7.38 percent, indicating the stress in the segment. Public sector banks accounted for Rs.115.281 billion in agricultural loans compared to Rs.111.571 billion last year. The NPAs of private banks in this segment rose from Rs 14,462 billion to Rs 18,900 billion.
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An NPA is a loan or advance payment that has the principal or interest payment remaining overdue for a period of 90 days.
The total outstanding credit for the agricultural sector was 13.84 lakh crore for FY21. Lending to agriculture and related activities remained robust at 10.4 percent in November 2021, compared to 7.0 percent in November 2020, according to the latest RBI data. The share of the cooperative banks in land lending to agriculture has steadily declined as the SCBs penetrate this segment. Lending to the agricultural sector by non-bank financial firms is on the decline. It decreased from Rs 62,722 billion in FY19 to Rs 49,012 billion in FY20 and to Rs 37,892 in FY21.
“The Covid pandemic may have played a role in the rise in non-performing loans in the agricultural sector as the economy declined and demand for goods declined as well. Also, write-offs on other loans and restructuring proposals were higher compared to agricultural loans, “a bank source said.
On the flip side, gross NPAs in this sector, signaling mounting stress in medium, small and micro enterprises (MSMEs), shot to 1.28.502 billion from Rs 19,798 crore in FY 2021. Thousands of MSMEs had their shutters down when the first wave of Covid hit the country in March 2020.
The RBI’s financial stability report said the public sector and private banking MSMEs portfolio shows accumulation in the NPA and SMA-2 categories in September 2021 compared to March 2021. The NPA value was 18 in September 2021 .5 percent compared to 16.8 percent in March 2021.
Lending to the MSME segment slowed (compared to the previous year) until the end of September 2021 compared to March 2021. The decline was particularly noticeable in the ticket sizes below Rs 25 billion in the large banking groups. The Emergency Credit Line Guarantee Scheme (ECLGS) approved loans totaling Rs.282 billion through November 12, 2021, of which 2.28 billion were incremental credits during the period, it said.
The increase in MSME NPAs is despite the launch of the ECLGS program for the MSME sector to relieve the sector amid the Covid-19 pandemic in May 2020. . Almost 93.7 percent of these accounts fall into the category of micro and micro accounts. In absolute terms, MSME credit accounts worth Rs 1.8 lakh crore were saved from sliding into the NPA during the period. That equates to 14 percent of the outstanding MSME loans that will be saved from becoming NPA, ”according to a research report from the State Bank of India.
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