More Stories

Informist, Monday, Apr. 20, 2026

 

MUMBAI – The impact of El Nino on the Indian economy in 2026-27 (Apr-Mar) is likely to be asymmetric and is unlikely to lead to system-wide stress in rural credit, India Ratings and Research said in a note Monday. Risks due to El Nino are seen state-specific and lagged, while credit risk is seen concentrated in microfinance, tractor and agri equipment finance, and micro, small and medium enterprises linked to agriculture, the agency said. 

 

"Overall, El Nio 2026 is a monitorable risk – not a basecase disruption – with FY27 volatility likely to be temporary and region-specific," the note said. The India Meteorological Department sees a 62% chance of El Nino emerging in Jul-Aug, and expects it to persist till the end of 2026.

 

More than aggregate rainfall, the spatial distribution and timeliness of the monsoon could be key in determining El Nino's impact on credit, the note said. A temporary skew in rainfall patterns is likely to have a larger impact on credit than cumulative rainfall, since the former coincides with the crucial phase of harvesting of kharif crops, the note said. This will impact the quality of the harvest, pricing of the produce, and post-harvest cash flows, India Ratings and Research said. Loan repayment pressure usually surfaces after agri-linked cash buffers erode, especially when poor kharif harvests squeeze funding for rabi crop and subsequent income cycles, which is likely to push potential credit stress into Oct-Dec and Jan-Mar FY27, the note said. 

 

The ratings agency expects large non-banking financial companies with diversified loan books to absorb any hit to credit due to El Nino without a permanent compromise on asset quality, unless such shocks compound. Lenders with diversified incomes are likely to see limited risks to credit due to large geographic coverage, provisioning and earnings buffers, and resilience in collections. Lenders with higher exposure to agriculture-linked finance are the most sensitive to temporary disruptions in cash flows, it said. "High dependence on farm incomes, limited savings buffers, and high-frequency repayment structures can lead to temporary delinquency volatility, although such stress has historically been cyclical and reversible," it said. Poor monsoon is expected to reflect in a rise in repayment delinquencies with a lag, the note said.

 

Due to lower irrigation penetration in districts dependent on rainfall, Maharashtra is the most vulnerable to the effect of El Nino, while Karnataka is also prone to localised risk, the note said. Territories with low irrigation coverage and poor diversification in incomes, such as rain-dependent belts of central and western India are most exposed to risks from El Nino, it said. Such states include Jharkhand, Goa, and Chhattisgarh.

 

The risks of El Nino are likely to be limited in Tamil Nadu and Andhra Pradesh due to strong irrigation coverage and relatively stable agrarian cash flows, the note said. In spite of an indicative rainfall deficit, Uttar Pradesh stands to benefit from high irrigation. 

 

The ratings agency compared Jul-Sept FY24--which was impacted by El Nino--with the same quarter in FY25, which saw a normal monsoon, across large, diversified shadow lenders. The study suggests that if credit stress materialises due to El Nino in calendar year 2026, it will likely be "moderate and reversible, rather than structurally impairing," the note said.

 

The study showed a systemic fall in repayment delinquency levels during the normal monsoon year, which was most visible in stage-3 assets. The study concluded that monsoon-linked credit stress is not immediate, but cyclical and lagged, the note said. As per the study, asset quality becomes stable as cash flows normalise, as long as there are no disruptions to subsequent cropping seasons. 

 

"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," Karan Gupta, director and head – financial institutions, India Ratings and Research, said in the note.  End

 

Reported by Cassandra Carvalho

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.