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MSME Loan Segment Likely to See Increased Pressure Amid West Asia Tensions
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According to a recent report by CRISIL Ratings, loans extended to micro, small and medium enterprises (MSMEs) may come under comparatively greater strain than other lending segments due to the ongoing conflict in West Asia, along with the maturing of loans issued during a period of rapid growth.
The MSME sector, which made up nearly 19% of total bank credit as of March 2026, is expected to be more vulnerable to external disruptions arising from the geopolitical situation, the report noted.
However, proactive steps by the government are likely to ease some of this pressure and help prevent a broader impact on banks’ non-performing assets (NPAs). Similar to past instances of economic stress, such as during the COVID-19 pandemic, additional support measures—including potential credit guarantee schemes for affected industries—could play a key role in maintaining the stability of bank asset quality.
CRISIL’s baseline outlook suggests a slight uptick in gross NPAs within the MSME portfolio, rising to around 3.4%–3.6% in the current fiscal year from 3.2% in the previous year. This is largely because MSMEs generally have limited capacity to absorb rising input costs, supply chain disruptions, and extended working capital cycles triggered by the ongoing conflict, said Subha Sri Narayanan, Director at CRISIL Ratings.
The MSME sector, which made up nearly 19% of total bank credit as of March 2026, is expected to be more vulnerable to external disruptions arising from the geopolitical situation, the report noted.
However, proactive steps by the government are likely to ease some of this pressure and help prevent a broader impact on banks’ non-performing assets (NPAs). Similar to past instances of economic stress, such as during the COVID-19 pandemic, additional support measures—including potential credit guarantee schemes for affected industries—could play a key role in maintaining the stability of bank asset quality.
CRISIL’s baseline outlook suggests a slight uptick in gross NPAs within the MSME portfolio, rising to around 3.4%–3.6% in the current fiscal year from 3.2% in the previous year. This is largely because MSMEs generally have limited capacity to absorb rising input costs, supply chain disruptions, and extended working capital cycles triggered by the ongoing conflict, said Subha Sri Narayanan, Director at CRISIL Ratings.
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