Business · India Bureau
SFB gross NPAs set to decline in FY27 on microfinance recovery
Small finance banks are expected to see their gross non-performing assets decline in the fiscal year ending March 2027, driven by improvement in microfinance credit performance and stable asset quality in non-microfinance segments, according to rating agency Crisil.
LSN India ·
The improvement in asset quality across small finance banks will be underpinned by two key factors: a recovery in microfinance credit performance and an expanding contribution from non-microfinance loans where asset quality is anticipated to remain stable, Crisil said in its analysis.
Microfinance has emerged as a critical driver of the sector's recovery trajectory. After experiencing stress in recent years, the microfinance segment is showing signs of normalisation as borrowers' repayment capacity strengthens and lending discipline improves across the industry.
Simultaneously, small finance banks have been diversifying their loan portfolios beyond microfinance into other segments such as small business loans, retail lending, and agricultural credit. These non-microfinance products are expected to maintain steady asset quality metrics even as they represent a growing share of total advances.
The dual dynamics of microfinance recovery and stable non-microfinance asset quality position small finance banks to achieve lower gross NPAs in FY27 compared to current levels. This improvement reflects broader economic stabilisation and better credit discipline across the microfinance ecosystem.