Chennai: El Nino conditions this monsoon will affect Maharashtra and parts of Karnataka the most. Non-bank finance companies-microfinance institutions (NBFC-MFIs), tractor and agri-equipment finance, and agri-linked MSMEs face credit sensitivity.
“El Nino conditions and a likely below-normal monsoon are unlikely to cause systemic credit stress in rural and semi-urban areas. The impact is likely to be asymmetric across regions, asset classes, and lenders due to variables such as availability of irrigation cover, credit sensitivity of asset classes, and diversification in the books of lenders”, says Karan Gupta, Director, FI, Ind-Ra.
Rain-fed Maharashtra and parts of Karnataka face the highest exposure, while Tamil Nadu, Andhra Pradesh, and Uttar Pradesh benefit from a stronger irrigation cover.
Maharashtra remains the most vulnerable due to lower irrigation penetration in rain‑fed districts, with Karnataka presenting an intermediate, largely localised risk profile. Regions with low irrigation coverage, such as Jharkhand, Goa, and Chhattisgarh, and limited income diversification, particularly in rain‑fed belts of central and western India, also remain exposed.
Tamil Nadu and Andhra Pradesh are supported by higher irrigation coverage and more stable agrarian cash flows, while Uttar Pradesh benefits from structurally high irrigation, despite indicative deficits.
Beyond aggregate rainfall outcomes, spatial distribution and timeliness could be the key determinant of credit impact. A temporal skew in rainfall is more impactful than cumulative rainfall, as it coincides with the critical maturity phase of kharif crops, thereby influencing harvest quality, price realisation, and post-harvest cash flows.
Credit sensitivity is highest for non-bank finance companies-microfinance institutions (NBFC-MFIs), tractor and agri-equipment finance, and agri-linked MSMEs. Large, diversified NBFCs are expected to absorb volatility without lasting asset quality impact unless the shocks compound.
Diversified lenders benefit from geographic spread, earnings buffers, and collection resilience. Repayment pressure typically surfaces after farm cash buffers weaken, particularly when kharif outcomes affect rabi funding and subsequent income cycles, pushing potential stress into 3Q-4QFY27.
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