Federal Bank, RBL Bank Pull Back on Farm Lending as Weather Risks Mount

Several Indian banks and non-banking finance companies have slowed the growth of their agriculture and rural loan books, according to results reported so far for the quarter ended September 2026. The pullback, disclosed in the lenders' second-quarter filings and analyst calls, reflects a risk-off stance as concerns build over deficient rainfall and the possible effects of El Nino conditions on farm incomes and repayment capacity.

The caution marks a shift from the past two years, when rural credit was a reliable source of volume growth for lenders looking to diversify beyond urban retail loans. This quarter, agriculture loans either contracted or expanded more slowly than overall advances at most of the banks that have reported, meaning the segment is shrinking as a share of their credit books.

RBL and Federal Bank report the sharpest slowdown

RBL Bank posted the steepest decline. Its agricultural loan book fell nearly 12 per cent year-on-year to ₹1,367 crore in the second quarter of FY27, and the portfolio's share of total advances dropped to 0.96 per cent from 1.54 per cent a year earlier. Federal Bank reported a notable moderation, with loans to the agricultural sector down nearly 3 per cent year-on-year to ₹8,065 crore. The segment's share of its overall advances fell by 50 basis points to 2.7 per cent.

Federal Bank's managing director and chief executive said the lender had been cautious about growing certain segments and had not pushed the pedal on agriculture. He said the bank continues to watch the outcomes of El Nino, geopolitics, the interest-rate scenario and inflation. ICICI Bank also reported muted growth in agriculture lending, with its loan book up 1.7 per cent year-on-year to ₹32,333 crore from ₹31,799 crore a year earlier.

Two large lenders grow, but shares still slip

Axis Bank and HDFC Bank were exceptions to the broader trend, expanding their agriculture and rural portfolios during the year. Axis Bank's farm-loan book grew 20 per cent year-on-year, while HDFC Bank's agriculture loan portfolio rose 6.5 per cent to ₹1.3 lakh crore in the quarter. Even so, both lenders reduced the proportion of agriculture loans within their overall books, showing that growth trailed total advances.

Axis Bank's agriculture-loan share fell to 8.9 per cent from 9.3 per cent, and HDFC Bank's declined to 4 per cent from 4.43 per cent a year earlier. The trend extended to non-banking lenders. L&T Finance's farmer finance disbursement declined 1 per cent year-on-year to ₹1,643 crore, and its share of overall disbursements fell to 6.8 per cent.

For workers, the shift matters most in rural and semi-urban branches, where agriculture credit supports field officers, relationship managers and loan processing staff. When a lender deliberately restrains a segment, hiring in that division typically slows, targets for field staff are reset, and credit teams are redeployed to products the bank wants to grow. Analysts also note that agriculture lending carries high credit costs when weather turns adverse, so risk and collections roles become more prominent than origination roles during cautious phases.

What to watch next

Lenders still to report third-quarter results will show whether the pullback is broad or confined to a handful of banks. Commentary on rainfall patterns, reservoir levels and early signals from El Nino will shape whether agriculture credit is restored in the March quarter, when the rabi crop season typically drives fresh demand. Deposit costs and the trajectory of interest rates will also influence how aggressively banks price farm loans. For now, agriculture lending remains in a holding pattern, with most lenders signaling they will wait for clearer weather and macro data.