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MSMEs NPAs likely to rise 3.9% in FY26 due to US tariffs: Crisil

07 Oct 2025 Evaluate

The credit rating agency Crisil has said that the gross non-performing assets for the banking system's micro, small and medium enterprises (MSMEs) portfolio are likely to rise moderately to about 3.9% by FY26-end. It added that the 50% tariffs imposed by the US on Indian exports will primarily contribute in increase of the dud assets. It noted that the sector constitutes 17% of outstanding loans for the banking system and the overall NPAs for the sector stood at 3.59% at the end of FY25. It added that tariffs will affect export-oriented MSMEs in sub-segments, such as textiles, garments and carpets, gems and jewellery, shrimp and processed seafoods and certain verticals of the chemicals sector.

Amid calls for pushing credit to small businesses to help drive economic growth, Crisil has warned of associated risks that may come it. It added that the tariff-impacted MSMEs will push up the overall bank NPAs by a notch. It estimates the system-level dud assets to reach 2.3%-2.5% by the end of FY25 from 2.3% at the end of the previous fiscal. It also flagged the unsecured segment in the retail loan books as something to watch out for from an asset quality perspective. 

It has pointed that the banks have adopted an aggressive write-off policy in this sub-segment. It noted that slippages were elevated during the fiscal (more than 2 times the opening gross NPA) but the high write-offs (50% of opening gross NPA + slippages) resulted in only a modest uptick in gross NPAs to 1.8% as of March 31, 2025, from 1.5% a year earlier. It hinted that the overall retail NPAs will remain at 1.2% supported by to the steady performance of the housing sector loans. In the corporate sector, which accounts for 38% of the outstanding loans, it expects the NPAs to remain steady at 1.4%-1.5%, given the strong balance sheets.

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