SFB asset quality worsens in FY25; GNPA rises to 3.6%: RBI report

RBI's Trends and Progress report said small finance banks saw weaker asset quality and lower profits in FY25, even as balance sheets expanded at a faster pace than other banks

The asset quality of small finance banks (SFBs) deteriorated, with the gross non-performing assets (GNPA) ratio rising to 3.6 per cent at the end of March 2025 from 2.4 per cent a year earlier, according to the Reserve Bank of India’s Trends and Progress report.

Why did SFB profitability moderate in FY25?

Profitability of SFBs also moderated in 2024-25 despite robust balance sheet growth. Net profit declined to Rs 3,496 crore from Rs 6,219 crore in FY24, due to a sharp increase in expenditure on provisions and contingencies.

How did SFB balance sheets and deposits perform in 2024-25?

The combined balance sheet size of SFBs continued to increase in double digits during 2024-25, outpacing growth in other categories of scheduled commercial banks (SCBs). Term deposits accounted for 73.9 per cent of total deposits of SFBs at end-March 2025. With deposit growth remaining higher than credit growth, the credit-deposit (CD) ratio of SFBs moderated to 86.4 per cent at end-March 2025 from 90.1 per cent a year earlier.

 

How well-capitalised are SFBs despite the fall in profits?

Despite the drop in profitability, SFBs remained well capitalised, with the capital adequacy ratio at 21.5 per cent and Tier 1 capital at 18.8 per cent at end-March 2025. In FY25, 11 SFBs were operational with 7,403 domestic branches in India.