MSME NPAs Likely To Rise To 3.9% By FY26-End Amid US Tariff Pressure: Crisil

New Delhi, Oct 7 (KNN) Gross non-performing assets (NPAs) in the banking system’s micro, small, and medium enterprises (MSME) portfolio are projected to rise moderately to around 3.9 percent by the end of FY26, driven primarily by recent steep tariffs imposed by the United States on Indian exports, according to a report by Crisil Ratings.

MSMEs account for approximately 17 percent of outstanding bank loans, with sectoral NPAs at 3.59 percent at the close of FY25. 

"This fiscal, we see NPAs in the MSME sector increasing moderately to 3.7-3.9 per cent. This is primarily due to the recent, steep hike in tariffs announced by the US," said Crisil director Subha Sri Narayanan, reported PTI.

Narayanan added that the tariffs will affect export-oriented MSMEs in sub-segments such as textiles, garments and carpets, gems and jewellery, shrimp and processed seafood, and certain verticals of the chemicals sector.

While expanding credit to MSMEs can support economic growth, it carries inherent risks, the agency warned. 

Historically, periods of rapid MSME growth have been followed by an uptick in NPAs in subsequent years. Tariff-induced stress is also expected to push system-level bank NPAs to 2.3–2.5 percent by FY26, up from 2.3 percent at the end of FY25.

In contrast, the retail and corporate segments are expected to remain largely stable. 

Crisil’s associate director, Vani Ojasvi, highlighted that gross NPAs in the unsecured retail segment were contained at 1.8 percent as of March 31, 2025, due to aggressive write-offs, despite slippages more than doubling during the fiscal year. 

Overall retail NPAs are projected to remain at 1.2 percent, underpinned by steady housing loan performance.

The corporate loan segment, constituting 38 percent of outstanding loans, is expected to maintain NPAs at 1.4–1.5 percent, supported by strong corporate balance sheets, the agency added.

Crisil emphasised that continued monitoring of credit costs and asset quality will be critical, especially for export-oriented MSMEs facing external shocks.

(KNN Bureau)