Key facts
- Agricultural and rural credit demand is expected to remain strong in FY27.
- Higher input costs, expanded Kisan Credit Card coverage, and increased investments in allied activities and infrastructure are key drivers.
Agricultural and rural credit demand is projected to remain strong in FY27, driven by elevated input costs, expanded Kisan Credit Card coverage, and increased investments in allied activities and infrastructure, according to NABARD Deputy Managing Director Ajay Kumar Sood. He noted a significant increase in agricultural credit disbursement over the past decade.
The outlook for agricultural credit demand is crucial for India's rural economy, impacting farmers, rural businesses, and the broader financial sector. NABARD's projections suggest continued investment and growth potential, but rising interest rates pose a significant risk to farmer profitability and access to affordable credit.
Demand for agricultural and rural credit is anticipated to remain robust through fiscal year 2026-27, according to Ajay Kumar Sood, Deputy Managing Director of NABARD. This sustained demand is attributed to rising input costs, broader coverage of the Kisan Credit Card (KCC) scheme, and increased investments in agricultural mechanization, allied activities, and infrastructure.
Sood highlighted a substantial increase in agricultural credit disbursement over the past decade, projecting it to rise further from approximately Rs 8.5 lakh crore in FY15 to around Rs 30 lakh crore provisionally in FY26. He anticipates continued, albeit more gradual, growth in FY27.
The structure of agricultural lending is evolving, with a greater emphasis on long-term investment credit rather than short-term crop loans, which is expected to enhance the sector's credit absorption capacity and support long-term growth.
However, Sood cautioned that rising borrowing costs present a significant challenge for farmers, particularly small and marginal ones who operate on thin profit margins. He noted that even a 100 basis point increase in interest rates could substantially erode their profitability and affect credit access for Self-Help Groups (SHGs) and rural MSMEs.
To mitigate these challenges, NABARD provided approximately Rs 4.5 lakh crore in concessional refinance assistance and targeted short-term refinance products during FY26, aiming to provide lower-cost liquidity to rural financial institutions.
Regarding global geopolitical tensions, Sood expressed confidence in India's ability to manage potential disruptions. He cited robust domestic buffer stocks of wheat and rice, subdued food inflation in FY26, and proactive government measures for fertilizer availability as mitigating factors. He also noted that fertilizer and irrigation costs, representing about 11% of total crop production costs, would limit the impact of any 'Hormuz shock'.
Government initiatives such as the National Mission on Natural Farming, PM-KUSUM, and the National Green Hydrogen Mission were also mentioned as crucial for strengthening the farm sector's resilience.