MSME GNPA Falls To 3.3%, Pace Of Improvement Slows: CareEdge

New Delhi, May 16 (KNN) The gross non-performing assets (GNPA) ratio of small businesses has improved significantly, declining to 3.3 percent by September 2026 from 11 percent in FY20, driven by recoveries, loan upgrades and moderation in fresh slippages, according to a report by CareEdge Ratings.

The report noted, however, that the pace of improvement has slowed in recent months, indicating limited scope for further sharp declines in bad loans, reported Business Standard.

MSMEs Increasingly Export-Oriented And Credit Dependent 

It said micro, small and medium enterprises (MSMEs) are becoming increasingly export-oriented and more reliant on bank funding, particularly for working capital requirements, making their asset quality more vulnerable to shifts in global demand and fluctuations in input costs.

West Asia Conflict Adds Pressure On Cash Flows 

The ongoing West Asia conflict has added fresh uncertainty to MSME credit conditions by disrupting trade flows, extending receivable cycles and increasing input as well as logistics costs, thereby tightening working capital positions for export-oriented and supply chain-linked businesses.

CareEdge said these factors could weaken cash flows for MSMEs, particularly those dependent on exports, amid continued geopolitical volatility.

ECLGS 5.0 Expected To Provide Counter-Cyclical Support 

At the same time, the recently announced Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 is expected to provide relief by facilitating an additional Rs 2.55 trillion in credit.

The report said the scheme could act as a counter-cyclical tool to ease liquidity stress, support employment and production, and limit broader macro-financial spillovers during periods of heightened uncertainty.

The MSME segment’s asset quality has improved steadily over the past few years, with GNPA declining from 7.6 percent in FY22 to 3.3 percent by September 2026, but external risks continue to remain a concern.

(KNN Bureau)