India is a fundamentally different economy from the one that feared the monsoon. Agriculture’s GDP share has fallen from over 50 per cent in the 1950s to roughly 15-16 per cent today; services now account for more than half of gross value added.
Irrigation covers over 47 per cent of net sown area, up from 17 per cent in 1951, and non-farm income exceeds 50 per cent of rural household earnings. When the 2009 drought arrived, one of the worst in a century, rainfall 22 per cent below normal, GDP still grew at 8.4 per cent. The structural buffers are stronger today than they were then.
The question for lenders is not whether the monsoon will slow parts of the economy; it may, but which borrowers are genuinely exposed.
The exposure is concentrated and identifiable. Rain-fed households in kharif-dependent belts, growing pulses, oilseeds and coarse cereals across central and northwest India, face the most direct income pressure. This overlaps with India’s microfinance borrower base. The NBFC-MFI growth has moderated from 29 per cent in FY24 to 17–19 per cent in FY25 (ICRA). Therefore, vigilance is warranted there.
MSME credit accounts for 23% NBFC AUM
Total NBFC assets stand at approximately ₹45 trillion, 21 per cent of systemic credit, up from 12 per cent in FY08. MSME credit accounts for 23 per cent of NBFC AUM; housing finance 16 per cent; vehicle finance 11 per cent.
Most exposure is to urban salaried and formal-sector workers and services businesses – incomes uncorrelated with seasonal rainfall. Collateral-backed borrowers, those with gold loans or loans against property, carry a repayment incentive independent of the kharif harvest.
Weak monsoon increases gold loan demand
NBFC gold loan AUM grew 18 per cent in FY25, market CAGR is projected at 15-18 per cent, and rising gold prices mean the same jewellery now secures larger loans.
Food’s 46 per cent CPI weight means a shortfall pushes prices up, but a kirana owner in Jaipur or an electrician in Ahmedabad earns from daily commerce, not the kharif harvest.
The bottom line
If rainfall holds near 90–92 per cent of LPA with reasonable distribution, expect modest pressure on microfinance collections, some softening in rural consumption, and manageable impact on the NBFC sector, with GDP near 6.5–6.6 per cent.
A prolonged deficit below 90 per cent would push food inflation above 6 per cent, extend MFI NPA cycles, and create a policy bind for the RBI, with GDP edging toward 6.3–6.4 per cent and provisioning rising, weighted toward MFI and unsecured exposures.
The lenders who navigate this best will be those that have done the requisite work in advance: diversified portfolios, disciplined underwriting, early-warning infrastructure, and the clarity to know which borrowers are actually at risk — rather than treating every forecast as a reason to tighten credit across the board.
The monsoon does not threaten India’s lending ecosystem equally; it threatens a specific segment, in specific geographies, through a specific channel, and the lenders who understand that will see opportunity where others see only risk.
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Disclaimer: This article is written by Divya S, president & executive director – business strategy, Capri Global Capital Ltd. Views expressed are her own. Readers’ discretion is advised.