Agriculture sector NPAs set to rise in FY26: Experts

Agriculture sector NPAs may see a jump in FY26 due to flooding caused by heavy rainfall this monsoon in the grain bowl states, including Punjab, where crops have been destroyed, say experts.   

This could be a cause of concern for the banking sector as the agriculture sector holds the largest share of poor loans among all sectors of the Indian banking industry, according to the Reserve Bank of India's (RBI) Financial Stability Report published in June 2025.

The report said that agricultural advances had a gross non-performing asset (GNPA) ratio of 6.10% as of March 2025, the highest among major sectors, even though lending in the sector improved gradually over the past few years.  

“Agriculture sector NPAs have gone up by up to 2.5 times in recent years, with an estimated 20-25% at least can be directly related to climate-driven issues,” says Ankit Todi, Chief Sustainability Officer, Mahindra Group.

Mahindra & Mahindra Financial Services Limited, a rural non-banking financial company, has been involved in agriculture lending and is assessing the impact of climate-related events on its portfolio.

Several scientific studies have pointed out that extreme weather events such as floods, drought, and high temperatures are likely to impact agricultural production in the country, adding to the financial burden.

Experts say the flooding caused by this monsoon has damaged crops across several states, and this means a rise in the agriculture NPAs this financial year.   

Prime Minister Narendra Modi visited the flood-affected areas of Punjab on Tuesday, and Himachal Pradesh, and the centre has announced a relief package of Rs 1600 crore for the state.

Between August 24 and September 4, North India recorded 205.3mm of rain against a normal of 73.1mm, registering 35% of the region's quota for the entire four-month monsoon season.

Punjab was most heavily impacted, with 388% surplus rain in the first week and 454% in the second. Haryana, Delhi, and Chandigarh recorded 325% excess rainfall, Himachal Pradesh 314%, west Rajasthan 285%, J&K 240% and Uttarakhand 190%.