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Rating agency CRISIL on Monday said that gross non-performing assets (NPAs) of banks are likely to have bottomed out and are expected to remain in the 2.3–2.5 per cent range by March 31, 2026. Bad loans had reached a historic low of 2.3 per cent as of March 31, 2025.
Corporate credit stable; MSMEs and retail under watch
The asset quality of corporate credit, the largest segment, is expected to remain stable. However, NPAs in the micro, small and medium enterprises (MSME) segment may inch up, primarily in export-oriented sectors. The impact of loan seasoning following high growth in recent years could be another contributing factor.
On the retail front, delinquencies in the unsecured segment remain under watch, CRISIL said in a statement.
Schemes and formalisation aiding MSME credit quality
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Gross NPAs in the MSME segment — which accounts for 17 per cent of overall bank credit — have declined steadily in recent years to 3.6 per cent at the end of March 2025, from 8.7 per cent as on March 31, 2021.
Government schemes such as the Credit Guarantee Fund for Micro Units (CGFMU) and the Emergency Credit Line Guarantee Scheme (ECLGS) have supported asset quality. However, part of the decline can also be attributed to bank write-offs, the report added.
The increasing formalisation of the MSME sector in recent years has improved data availability, helping banks refine their underwriting, credit decisions and monitoring processes. This is reflected in the controlled level of Special Mention Accounts-2 (SMA-2) at 0.8 per cent as of March 31, 2025, compared with around 1.2 per cent as on March 31, 2024.
Caution on rapid MSME growth cycles
However, the report cautioned that in the past, periods of rapid MSME growth have often led to higher NPAs in the subsequent years.
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