Sub-prime lending by PSBs rises on the back of govt guarantees

Mumbai: Public sector banks have elevated lending to new in addition to lower-rated micro, medium and small enterprises making the most of authorities assure schemes, at the same time as business developments counsel a broader shift in the direction of high-quality debtors. The share of subprime debtors within the excellent MSME portfolio of banks decreased to 23.3% in March 2025 from 33.5% in June 2022, in accordance with information from the Reserve Financial institution of India’s newest monetary stability report.

The share of such accounts within the excellent MSME ebook of public sector banks stood at 30.3% on the finish of March, in contrast with 18% for personal banks and 26.1% for non-banking finance firms.

Alternatively, super-prime debtors make up 53.7% of personal banks’ MSME ebook, in contrast with 39.3% for state-owned banks and 35.4% for NBFCs, the information confirmed.

Sometimes, super-prime debtors are charged beginning 9% yearly. These loans are backed by robust collateral reminiscent of property. Subprime debtors pay 16-24%, with public sector banks on the decrease finish of this band and NBFCs are the opposite finish, business executives stated.

Not like personal lenders, public sector banks’ MSME lending is principally below varied credit score assure schemes, stated business executives.

“PSU banks’ lending to MSME is extra coverage pushed with an purpose to deliver extra debtors below the purview of lending. For the reason that mortgage is partially assured by the federal government, we now have a broad-based underwriting coverage to lend to lower-rated debtors and even to new-to-credit prospects,” stated a senior official at a state-owned financial institution.”Given the previous asset high quality points within the business, there was a shift in the direction of a high-quality portfolio which is predominantly high-ticket MSME lending backed by collateral or within the type of loan-against-property,” stated Amit Sharma, MSME enterprise head at IIFL Finance. Round ₹6.28 lakh crore are assured below the federal government’s two flagship schemes for MSMEs: the Credit score Assure Fund for Micro Models (CGFMU) and the Emergency Credit score Line Assure Scheme (ECLGS).Non-performing belongings lined below CGFMU throughout banks and NBFCs stood at 9.9%. Underneath ECLGS, NPAs had been 6.4%. “The NPA ratio in each schemes stays contained regardless of the riskiness of debtors,” the RBI stated.

Comparatively, the general asset high quality of MSME portfolio of banks has improved with the gross NPA ratio falling to three.6 as on March 31 from 4.5 a yr earlier.