Small finance banks (SFBs) across India are poised for a notable rebound in asset quality, with gross non-performing assets (GNPA) projected to decline by roughly 120 basis points to between 2.6% and 2.8% by March 2027, according to a recent report by Crisil Ratings.
This projected recovery is driven by two primary factors:
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Microfinance Recovery: The microfinance portfolio is stabilizing following earlier stress, bolstered by significantly tighter underwriting practices and improved borrower selection criteria.
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Non-Microfinance Growth: Non-microfinance segments are expanding at a faster pace, now making up a larger, more diversified share of total advances and shielding balance sheets against sector-specific shocks.
Having previously navigated elevated GNPAs of 3.8% and 4.4% during prior reporting periods, SFBs are steadily restoring portfolio health through enhanced risk management and strategic balance-sheet diversification.
