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Banks (Finance)

Public Sector Banks Report Significant Drop in Bad Loans in MSME Sector

Strategic Insights

— 2 min read

Public sector banks (PSBs) have recorded a substantial decline in bad loans within the micro, small, and medium enterprise (MSME) sector. According to recent data, loans extended by PSBs to MSMEs rose to Rs 13.07 lakh crore, marking an 11.3 per cent increase compared to the previous year. This growth, coupled with a decline in non-performing assets (NPAs), has led to a notable improvement in the financial health of MSMEs. Bad loans to small and medium enterprises have seen a significant reduction, with small enterprises experiencing a 28 per cent year-on-year decline to Rs 19,677 crore, and medium-sized enterprises witnessing a 30 per cent decline to Rs 8,553 crore. However, micro enterprises continue to face challenges, with bad loans standing at a high Rs 52,519 crore by the end of FY25.

Key Takeaways:

  • As of March 31, loans extended by PSBs to MSMEs rose to Rs 13.07 lakh crore, marking an 11.3 per cent increase compared to the previous year.
  • The value of non-performing MSME loans dropped 14 per cent year-on-year to Rs 80,749 crore.
  • Bad loans to small enterprises fell by 28 per cent year-on-year to Rs 19,677 crore, while NPAs in medium-sized enterprises declined 30 per cent to Rs 8,553 crore.
  • Compared to March 2023, these represent a 39 per cent and 46 per cent reduction, respectively.
  • Despite a slight 3 per cent decline from the previous year, bad loans in micro enterprises still stood at Rs 52,519 crore by the end of FY25.
  • Minister of State for Finance Bhagwat Karad noted that factors like the borrower's financial health, sectoral challenges, and the global economic environment influence NPA trends.
  • The Reserve Bank of India reported that credit to micro enterprises grew at a slower pace than that to small and medium firms in 2024-25.
  • The RBI also reported that the share of sub-prime borrowers in the MSME loan portfolio of scheduled commercial banks decreased from 33.5 per cent in June 2022 to 23.3 per cent in March 2025.
  • However, PSBs continue to hold a larger share of such risky borrowers than private banks and NBFCs.

Statistics:

  • Rs 13.07 lakh crore: Loans extended by PSBs to MSMEs as of March 31 (up 11.3 per cent from the previous year).
  • Rs 80,749 crore: Value of non-performing MSME loans (down 14 per cent year-on-year).
  • Rs 19,677 crore: Bad loans to small enterprises (down 28 per cent year-on-year).
  • Rs 8,553 crore: NPAs in medium-sized enterprises (down 30 per cent year-on-year).
  • Rs 52,519 crore: Bad loans in micro enterprises by the end of FY25 (down 3 per cent from the previous year).
  • 11.3 per cent: Increase in loans extended by PSBs to MSMEs.
  • 14 per cent: Year-on-year decline in non-performing MSME loans.
  • 28 per cent: Year-on-year decline in bad loans to small enterprises.
  • 30 per cent: Year-on-year decline in NPAs in medium-sized enterprises.
  • 39 per cent and 46 per cent: Reduction in bad loans to small and medium enterprises compared to March 2023.
  • 23.3 per cent: Share of sub-prime borrowers in the MSME loan portfolio of scheduled commercial banks in March 2025.
  • 33.5 per cent: Share of sub-prime borrowers in the MSME loan portfolio of scheduled commercial banks in June 2022.

Sources:

  • "PSBs report significant drop in bad loans to MSMEs" by Indian Express.
  • "RBI report on MSME lending and NPA trends".

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