Advances by small finance banks to exceed Rs 2 lakh crore this fiscal: Crisil Ratings

Advances by small finance banks (SFBs) are expected to exceed Rs 2 lakh crore in the current fiscal, reflecting a year-on-year growth of about 16–17 per cent, higher than around 13 per cent expansion recorded last year, said Crisil Ratings on Tuesday. The momentum is likely to be supported by sustained growth in non-microfinance segments, along with a steady recovery in the microfinance loan portfolio after the contraction witnessed in the previous fiscal.

The share of non-microfinance advances in SFB loans had jumped to around 67 per cent as of March 2025 from approximately 50 per cent as of March 2022. Within this, mortgage loans (housing loans and loans against property) had the largest share, having grown at an estimated 3-year CAGR of 38 per cent followed by vehicle and MSME loans, which grew at 3-year CAGRs of 32 per cent and 31 per cent, respectively.

“This fiscal, credit growth in the non-microfinance segments is expected to be 23-25%. While lower interest rates will support demand for affordable housing, policy spurs for MSMEs and tailwinds from the recent reduction in the goods and services tax on vehicle loans will be helpful, too,” said Aparna Kirubakaran, Director, Crisil Ratings.

Also read: RBI Looks to Fix Delays in Credit of Money Sent From Abroad

“Microfinance, on the other hand, will grow a relatively slower 4-5 per cent, but that will still be a rebound from around 14 per cent decline last fiscal. The sharper focus on non-microfinance segments will increase their share to an estimated 70% of all advances by the close of this fiscal,” she added.

Segmental diversification has been a long-running growth theme for SFBs, most of which were microfinance institutions (MFIs) at the time of conversion. Crisil said that the approach will continue this fiscal as well with recent headwinds in microfinance persuading sharper focus on diversification to other segments to minimise asset-quality concerns. 

Diversification is also crucial because the Reserve Bank of India (RBI) guidelines mandate thresholds of 3 per cent and 1 per cent for gross and net non-performing assets, respectively, for SFBs to acquire a universal banking license. 

Given the susceptibility of microfinance loans to sociopolitical pressures, diversification, particularly into secured asset classes, would support asset quality, Crisil said. In addition, these guidelines qualitatively accord preference to SFBs with a diversified loan portfolio.

While SFBs are poised for a steady loan book expansion, Crisil said that their ability to mobilise deposits at competitive costs and build a granular liability franchise will continue to be a key cog of their growth strategy. 

Also read: India’s Gold Loan Boom: While Borrowers Win, Lenders Must Weigh Risks

SFBs’ deposits grew 25 per cent last fiscal and 34 per cent in FY24, outpacing growth in advances. According to the data shared by Crisil, the share of deposits in overall external liabilities of SFBs has risen sequentially to around 91 per cent as of March 31, 2025 from around 70 per cent as on March 31, 2020. 

This has been driven by retail deposits including those from current accounts and savings accounts, clocking a 5-year CAGR of 34 per cent in fiscals 2021-2025.