India's agricultural loans face limited El Nino impact as credit growth stays healthy

A Yes Securities report says El Nino conditions could affect some agricultural loans in India but are unlikely to cause major disruptions to the banking sector. The firm expects credit costs to remain stable in FY27, with no material rise compared with FY26 and no significant one‑time impact from the Expected Credit Loss norms slated for FY28.

Key monitorables include the West Asia conflict, El Nino and lagged effects of trade tariffs. While credit costs on unsecured loans have begun to decline, they may stay somewhat sticky due to a slow nominal GDP recovery and potential micro‑finance stress from El Nino. MSME loans also remain under watch because of geopolitical and trade challenges, though the Emergency Credit Line Guarantee Scheme could provide a safety net.

Overall bank lending is projected to stay reasonably healthy, driven by strong corporate, MSME and retail loan growth. Credit growth, which has reached about 17 %, is expected to moderate to the low‑to‑mid‑teens range. Net interest income for covered banks is forecast to rise to 16.1 % in FY27 and stay near that level in FY28‑29. The report quotes, “El Nino may impact some agri loans but past experience tells us that this may not be overly disruptive, although we will monitor the possibility of a Super El Nino.”