 "SFB advances to cross ₹2 trillion in FY26, grow 16-17%: Crisil Ratings")
Advances of small finance banks (SFBs) are poised to cross Rs 2 trillion this fiscal, marking a growth of 16–17 per cent year-on-year (YoY) and surpassing last fiscal’s 13 per cent, according to Crisil Ratings. The uptick will be driven by continued expansion in the non-microfinance segments coupled with a calibrated recovery of the microfinance loan book from the de-growth seen last year.
While SFBs are set for steady loan book expansion, their ability to mobilise deposits at competitive costs and build a granular liability franchise will continue to be a challenge. Deposits grew 25 per cent in FY25 and 34 per cent in FY24, outpacing advances growth, the rating agency said.
Non-microfinance segments to lead growth
“This fiscal, credit growth in the non-microfinance segments is expected to be 23–25 per cent. While lower interest rates will support demand for affordable housing, policy spurs for MSMEs and tailwinds from the recent reduction in the goods and services tax on vehicle loans will be helpful too,” said Aparna Kirubakaran, Director, Crisil Ratings.
She added that microfinance will grow at a relatively slower pace of 4–5 per cent, yet this will still mark a rebound from the 14 per cent decline recorded last fiscal. “The sharper focus on non-microfinance segments will increase their share to an estimated 70 per cent of all advances by the close of this fiscal,” said Kirubakaran.
The share of non-microfinance advances in small finance loans rose to 67 per cent as of March 2025 from 50 per cent as of March 2022. Within this, mortgage loans — housing loans and loans against property — have grown at a three-year compound annual growth rate (CAGR) of 38 per cent.
MSME, vehicle loans show strong expansion
According to Crisil, vehicle loans and MSME loans grew at three-year CAGRs of 32 per cent and 31 per cent, respectively. SFBs have also increased the share of gold loans, agricultural credit, loans against fixed deposits, and wholesale funding in their portfolios over the past three fiscals.
Deposit mobilisation remains a key challenge
Over the years, the share of deposits in overall external liabilities of SFBs rose sequentially to 91 per cent as of March 31, from 70 per cent earlier. This was driven by retail deposits (including current accounts and savings accounts, or CASA), which grew at a five-year CAGR of 34 per cent from FY21 to FY25.
“Historically, what has aided deposit accretion for SFBs is the premium in interest rates offered over universal banks. Even today, that differential is 75–80 basis points. Their ability to offer higher deposit rates has been supported by relatively higher asset yields, giving them a cushion to manage net interest margins,” said Vani Ojasvi, Associate Director, Crisil Ratings.
Focus on sustainable funding strategy
Ojasvi added that as the share of lower-yielding secured asset classes increases, SFBs will need more sustainable deposit and funding mobilisation strategies to manage profitability.
Competition for deposits remains intense, with a decline in the share of stable household savings. SFBs’ ability to sustain deposit growth while improving their share of low-cost deposits will be crucial. Strong capital buffers — averaging 11.7 percentage points (pps) and 9.5 pps above regulatory Tier I and total capital requirements, respectively — will continue to support their growth.
While growth prospects remain healthy, Crisil noted that effective liability mobilisation will be key to sustaining momentum through FY26.