Overview
The government raises the agriculture credit goal for banks each year, usually when the Union Budget is unveiled. The government set the agriculture credit target for FY 25 at 27.5 lakh crores, which was 11% higher than the previous year, in the Union Budget 2024 as well. About 75% of the total loan allocated for farmers is given by commercial banks, with cooperative and regional rural banks providing the remaining portion. The government is expected to raise the banks’ agriculture lending objective in the next Union Budget as well, raising the total aim above Rs 28 lakhs.

Agri Credit Target set in 2024-25
Due to a greater formalization of the rural credit system, commercial banks’ and regional rural banks’ lending to the agriculture sector is expected to surpass Rs 28 lakh crore in the current fiscal year, setting a new record, Shaji KV, chairman of Nabard, stated on Sunday. The flow of agricultural finance has grown by 13% annually on average during the past ten years. In the current fiscal year, we will surpass Rs 28 lakh crore in loan flow, Shaji informed FE.

A record Rs 27.5 lakh crore was set as the agri-credit disbursement target for 2024–2025, 31% more than the FY24 objective of Rs 21 lakh crore. In 2023–24, banks disbursed Rs 25.49 lakh billion in term and crop loans, a 15% increase over FY23. This year’s growth is predicted to reach about 10%.

Government Initiatives gear up for Agri Credit
The informal sector’s percentage of credit disbursements is decreasing as agri-credit flows increase. On the sidelines of Grameen Bharat Mahotsav, which Nabard is organizing in partnership with the Department of Financial Services, he stated that this signifies the formalization of rural credit, which will guarantee many margins with the rural populace.

The finance ministry has set aside Rs 11.5 lakh crore for term loans and Rs 16 lakh crore for short-term crop loans, which will be paid out in 2024–2025. Seventy-five percent of the total credit, or Rs 20.62 lakh crore, will come from commercial banks. Rs 4.2 lakh billion of the entire agri-credit flow has been set aside for short-term loans to the dairy, fishery, and poultry industries.

The agriculture ministry’s Agri Stack effort, which would generate a farmer registry, village land maps, and crop sown data, would be used by the National Bank for Agriculture and Rural Development (Nabard) to digitize farmers’ credit records in order to rectify this imbalance in loan flow, Shaji stated.

At Rs 4.39 lakh crore, or 17.6% of the total credit disbursal in the country, Tamil Nadu received the largest credit disbursal in the previous fiscal year. Andhra Pradesh came in second with Rs 2.96 lakh crore, or 12% of the total. According to Shaji, Nabard wants to introduce the second phase of the Rs 1,000-crore Nabventures fund, which is intended for entrepreneurs in the agricultural and related industries. A Rs 750-crore agri fund for start-ups and rural businesses was introduced last year by Nabard in partnership with the agricultural ministry.

To satisfy their working capital needs, farmers with Kisan Credit Cards can receive loans up to Rs 3 lakh at 7% annual interest under the modified interest subvention scheme. The program lowers the effective interest rate to 4% by offering an extra 3% interest subvention for timely repayment.

Trend in Bank Credit to Agriculture
Banks are already heavily involved in agriculture and related fields. From an outstanding balance of Rs 13.3 lakh crores in FY21 to Rs 22.2 lakh crores in FY24, bank credit to agriculture has soared in recent years. That amounts to around 13% of the entire bank credit. According to the most recent data, bank lending to agriculture increased 15.3% year over year through November of last year, compared to 18.1% during the prior similar period. Nonetheless, the growth is significantly higher than the average loan growth, even at 15.3%. There are currently 22.2 lakh crores in outstanding agri-loans.

Because it is required by law, banks are increasing their financial flows to the farm sector. Banks are required to lend 18 percent of their adjusted net bank credit to agriculture under the priority sector lending (PSL) standards. This includes lending for agricultural infrastructure and auxiliary operations as well as farm finance, which covers agriculture and related industries.

Agriculture Sector’s efficiency unlikely to improve
According to the report, unpredictable weather patterns and an unequal monsoon spatial distribution in 2023 caused Gross Value Added (GVA) in the agriculture sector to grow more slowly even with this rise in credit. To put it another way, greater funding isn’t always translating into greater efficiency. The monsoons are one of several factors that affect the sector’s success. The issue cannot be resolved by money alone.

Banks, primarily state-run lenders, will have a lot to worry about in the coming days about their farm loan books if these loans go bad. Investors may therefore find it beneficial to closely monitor the agribook performance of banks, particularly state-run banks.