Banks Wary As MSME Loan Stress Rises Amid Global Tensions: Report

New Delhi, Jun 22 (KNN) India's micro, small and medium enterprises (MSME) loan segment is showing initial signs of stress, with delinquency levels edging higher in April 2026, according to a sector update by 360 ONE Capital. 

Lenders remain cautious amid concerns over supply-chain disruptions and rising input costs linked to the ongoing West Asia conflict.

The report noted that while the geopolitical situation has not yet materially impacted banks’ asset quality, financial institutions are wary of potential second-order effects on MSME borrowers.

The report said, "The recent commentaries by the banks (during 4Q) and our channel checks indicate that though the impact of the West Asia crisis is not yet visible on the asset quality, the banks remain cautious on the second order impact on the MSME borrowers," reported ANI.

Delinquencies Edge Higher

Data cited from credit bureau CRIF High Mark indicated a marginal deterioration in repayment trends. Loans in the MSME segment saw Portfolio at Risk (PAR)  31–90 and PAR 90+ levels increase to 1.8 per cent and 7.8 per cent, respectively, in April 2026, compared with 1.6 per cent and 7.6 per cent in the fourth quarter of FY26.

Stress appeared more pronounced among public sector banks, where PAR 31–90 rose to 3 per cent from 2.7 per cent in the previous quarter. In contrast, private sector banks maintained stable levels at 0.7 per cent.

Sectoral Impact and Growth Moderation

The report highlighted that sectors such as fertilisers, ceramics, polyester textiles, specialty chemicals, flexible packaging, auto components, diamond polishing and basmati rice exports could face pressure due to increased input costs and supply-chain disruptions.

Credit growth in the MSME segment also showed signs of moderation. Year-on-year loan growth slowed to 12.7 per cent in April 2026, down from 18–20 per cent recorded during the second and third quarters of FY26. Growth in active loans declined to 2.5 per cent year-on-year, reflecting a cautious approach by lenders in new disbursements.

Government Schemes May Cushion Impact

Despite emerging stress, the report indicated that government-backed guarantee schemes such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) and the Emergency Credit Line Guarantee Scheme (ECLGS) are likely to help mitigate risks for lenders and borrowers.

(KNN Bureau)