India's Public Sector Banks See Improvement in MSME Loan Stress

Strategic Insights -

India's public sector banks have been seeing a steady improvement in their micro, small, and medium enterprises (MSME) loan book, with the gross non-performing asset (NPA) ratio declining to 6.18% as of March 2024-25. This improvement is largely due to an increase in loans extended to MSMEs and a fall in the absolute amount of bad loans. Despite this positive trend, the decline in NPAs for micro enterprises has been significantly smaller, with a higher quantum of bad loans among these businesses.

Key Takeaways:

  • The gross NPA ratio of PSBs' MSME loans declined to 6.18% as of March 2024-25 from 12.8% in March 2022.
  • The fall in the gross NPA ratio was due to both an increase in loans extended to MSMEs and a fall in the absolute amount of bad loans.
  • For instance, loans given by state-owned banks to MSMEs stood at Rs 13.07 lakh crore as on March 31, up 11.3% year-on-year.
  • The value of loans that had become non-performing (NPAs) was down 14% from a year ago at Rs 80,749 crore.
  • The decline in NPAs for small and medium enterprises was significant, with bad loans to small enterprises down 28% year-on-year and 39% from March 2023.
  • However, the decline in NPAs for micro enterprises was considerably smaller, with bad loans to micro enterprises down 3% year-on-year and 7% compared to March 2023.
  • Lending to micro enterprises has been a problem for the entire industry, particularly for state-owned banks.
  • The Reserve Bank of India (RBI) reported that credit to micro enterprises saw weaker incremental growth in 2024-25 compared to small and medium businesses.

Statistics:

  • Gross NPA ratio of PSBs' MSME loans: 6.18% (as of March 2024-25)
  • Loans extended to MSMEs: Rs 13.07 lakh crore (as on March 31)
  • Value of non-performing loans: Rs 80,749 crore (down 14% from a year ago)
  • Bad loans to small enterprises: Rs 19,677 crore (down 28% year-on-year and 39% from March 2023)
  • Bad loans to micro enterprises: Rs 52,519 crore (down 3% year-on-year and 7% compared to March 2023)
  • Share of sub-prime borrowers in the MSME portfolio of SCBs: 23.3% (as of March 2025)

Sources:

  • Pankaj Chaudhary, Minister of State for Finance, Rajya Sabha
  • Reserve Bank of India (RBI)
  • IE Online Media Services Pvt. Ltd., distributed by Contify.com