Archive · 3 Sep 2026
Small Finance Banks’ Bad Loans Expected To Decline By 2027
Small finance banks had more trouble with unpaid loans in recent years.
Much of this trouble came from microfinance loans.
Microfinance borrowers had sometimes taken on too much debt.
Banks are now being more careful about approving loans and managing risk.
They have also slowed the growth of some lending and followed stricter industry rules.
Some banks wrote off about 7% of their outstanding loans as of March 2024.
CRISIL Ratings expects newer loans made under these stricter rules to perform better.
As a result, the share of bad loans at small finance banks is expected to decrease by March 2027.
CRISIL Ratings expects SFB gross non-performing assets to fall to 2.6–2.8% by March 2027.
SFB GNPAs stood at 3.8% in March 2026 and 4.4% in March 2025.
The expected improvement is linked to normalising microfinance, stronger risk controls and stable other lending segments.
Microfinance made up about 30% of SFB advances but contributed disproportionately to delinquencies.
SFBs tightened underwriting, moderated growth and wrote off about 7% of their outstanding portfolio as of March 2024.
- Who
- CRISIL Ratings and India’s small finance banks (SFBs).
- What
- SFB gross non-performing assets are expected to decline to 2.6–2.8% by March 2027.
- When
- The forecast was issued on Wednesday and covers March 2027, compared with March 2026 and March 2025 figures.
- Where
- Mumbai.
- Why
- The expected improvement is attributed to normalising microfinance operations, stronger risk management, tighter underwriting and stable asset quality in other lending segments.
- Projected SFB GNPA
- 2.6–2.8% by March 2027
- SFB GNPA in March 2026
- 3.8%
- SFB GNPA in March 2025
- 4.4%
- Microfinance share of SFB advances
- Around 30%
- Portfolio written off
- Around 7% of outstanding loans as of March 2024, largely involving microfinance loans
- Key industry framework
- Microfinance industry’s Guardrails 2.0 framework