Weather remains a key area of concern for lenders.
Banks and non-banking financial companies (NBFCs) are slowing the growth of their agriculture, rural and farm-loan portfolios, reflecting a risk-off approach amid concerns over deficient rainfall and potential fallout from El Nino conditions.
Results announced so far for the quarter ended September 2026 show agriculture and rural lending losing share in banks’ loan portfolios, with agri loans either contracting or growing more slowly than overall advances.
RBL Bank witnessed the sharpest decline. The lender’s agricultural loan book fell nearly 12 per cent year-on-year to ₹1,367 crore in the second quarter of FY27. Its farm-loan portfolio’s share of total advances also dropped to 0.96 per cent from 1.54 per cent a year earlier.
Federal Bank also reported a notable moderation in agri-lending. Loans to the agricultural sector declined nearly 3 per cent year-on-year to ₹8,065 crore in the second quarter of FY27. The segment’s share in the bank’s overall advances fell by 50 basis points to 2.7 per cent.
KVS Manian, MD & CEO, Federal Bank in the analysts call agreed to remain watchful and cautious. “We have been cautious about growing certain segments. If you look at our agriculture book, we have not pushed the pedal on that,” said Manian. Further adding “we continue to watch the outcomes of El Nino, geopolitics, interest-rate scenario, inflation.”
ICICI Bank, too, reported muted growth in agricultural lending. Its agriculture loan book rose 1.7 per cent year-on-year to ₹32,333 crore in the second quarter of FY27 from ₹31,799 crore a year ago.
Credit expanders
Axis Bank and HDFC Bank were exceptions to the broader trend, expanding their agriculture and rural lending portfolios during the year. Axis Bank’s farm-loan book grew 20 per cent year-on-year, while HDFC Bank’s agriculture loan portfolio increased 6.5 per cent to ₹1.3 lakh crore in Q2FY27.
However, even these banks reduced the proportion of agriculture loans within their overall lending books, indicating a relatively slower pace of growth compared with total advances. Axis Bank’s agriculture-loan share fell to 8.9 per cent from 9.3 per cent in Q2FY26, while HDFC Bank’s declined to 4 per cent from 4.43 per cent a year earlier.
The trend extended to NBFCs, with L&T Finance’s farmer finance disbursement declining 1 per cent year-on-year to ₹1,643 crore. Its share in overall disbursements also fell to 6.8 per cent in Q2FY27 from 8.7 per cent a year ago.
Monsoon effect
“There was this huge monsoon-related overhang in July and August, so we obviously decided it was prudent for us not to fire our rural distribution much,” said Sudipta Roy, MD and CEO of L&T Finance, in an interview with businessline.
The impact of rainfall deficiency has not been uniform across regions. RBL Bank, for instance, was among the most affected after the Maharashtra government declared drought in 305 sub-districts. By contrast, larger and geographically diversified lenders such as Axis Bank and HDFC Bank continued to record growth in their agri-loan books.
According to senior HDFC Bank officials during the earnings call, the varying impact reflects the uneven distribution of rainfall deficits across the country. The bank expressed confidence that kharif crop yields would largely track sowing patterns, despite the sowing area being 1.05 per cent lower than last year.
Weather remains a key area of concern for lenders. The year 2026 was marked by a super El Nino, a more intense phase of the El Nino Southern Oscillation that occurs roughly once every 10 to 15 years.
“I think the issue is only of 2-3 States, which is say Maharashtra, Karnataka, Andhra Pradesh. So, these 3 States, it would be specific, maybe all companies will not be seeing that issue. It is only people who are focused on this region, who have that impact of the drought,” said Siddharth Rajpurohit, Lead Analyst Banking and Non-lending Financials at Systematix Group.
Economists said the next key monitorable will be the progress of the Rabi season, as any further shortfall in rainfall could affect sowing activity and crop yields. India’s cumulative rainfall deficit currently stands at around 12.6 per cent.
Published on October 18, 2026
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