New Delhi, Jul 30 (KNN) Public sector banks (PSBs) have reported a significant drop in bad loans within the micro, small, and medium enterprise (MSME) sector, thanks to an increase in lending and a decline in non-performing assets (NPAs).

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. Simultaneously, the value of non-performing MSME loans dropped 14 per cent year-on-year to Rs 80,749 crore.

This improvement has been most evident in small and medium enterprises. 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.

However, the situation for micro enterprises remains challenging. Despite a slight 3 per cent decline from the previous year, bad loans in this segment still stood at a high Rs 52,519 crore by the end of FY25, only 7 per cent lower than March 2023.

Micro enterprises continue to account for the largest share of MSME bad loans, posing concerns for the sector.

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, reported Indian Express.

Moreover, the Reserve Bank of India highlighted that credit to micro enterprises—representing 49 per cent of MSME lending—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.

(KNN Bureau)