Sub-prime lending by PSBs rises on the back of govt guarantees
Public sector banks
have increased lending to new as well as lower-rated micro, medium and small enterprises taking advantage of
government guarantee schemes
, even as industry trends suggest a broader shift towards high-quality borrowers. The share of subprime borrowers in the outstanding MSME portfolio of banks decreased to 23.3% in March 2025 from 33.5% in June 2022, according to data from the Reserve Bank of India's latest financial stability report.
The share of such accounts in the outstanding MSME book of public sector banks stood at 30.3% at the end of March, compared with 18% for private banks and 26.1% for non-banking finance companies.
On the other hand, super-prime borrowers make up 53.7% of private banks' MSME book, compared with 39.3% for state-owned banks and 35.4% for NBFCs, the data showed.
Typically, super-prime borrowers are charged starting 9% annually. These loans are backed by strong collateral such as property. Subprime borrowers pay 16-24%, with public sector banks at the lower end of this band and NBFCs are the other end, industry executives said.
Unlike private lenders, public sector banks'
MSME lending
is mainly under various credit guarantee schemes, said industry executives.
"PSU banks' lending to MSME is more policy driven with an aim to bring more borrowers under the purview of lending. Since the loan is partially guaranteed by the government, we have a broad-based underwriting policy to lend to lower-rated borrowers and even to new-to-credit customers," said a senior official at a state-owned bank.
"Given the past asset quality issues in the industry, there has been a shift towards a high-quality portfolio which is predominantly high-ticket MSME lending backed by collateral or in the form of loan-against-property," said Amit Sharma, MSME business head at
IIFL Finance
. Around ₹6.28 lakh crore are guaranteed under the government's two flagship schemes for MSMEs: the Credit Guarantee Fund for Micro Units (CGFMU) and the Emergency Credit Line Guarantee Scheme (ECLGS).
Non-performing assets
covered under CGFMU across banks and NBFCs stood at 9.9%. Under ECLGS, NPAs were 6.4%. "The NPA ratio in both schemes remains contained despite the riskiness of borrowers," the RBI said.
Comparatively, the overall asset quality of MSME portfolio of banks has improved with the gross NPA ratio falling to 3.6 as on March 31 from 4.5 a year earlier.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Time of India
2 hours ago
- Time of India
Retail inflation hits over 6-year low of 2.10% in June; WPI turns negative
India's key inflation gauge dropped to pre-pandemic lows on the back of a sharp decline in food inflation, triggering hopes of another rate cut by the Reserve Bank of India (RBI). Retail inflation in June based on the Consumer Price Index (CPI) dropped to 2.1%, the lowest in more than six years and just shy of the lower end of the central bank's 2-6% target range, official data released Monday showed. The RBI is mandated to target 4% retail inflation within the range. This is the fifth consecutive month that CPI inflation has printed below 4%. Retail inflation is at its lowest since January 2019, when it was 1.97%. The Wholesale Price Index (WPI) slipped into the deflation zone, hitting a 20-month low of -0.1% in June against 0.4% in May. The drop in the inflation rate was driven by a decline in food and fuel prices and a moderation in manufactured goods. ICRA chief economist Aditi Nayar said a 25 bps cut in August cannot be ruled out, continuing the cuts seen this year in June. Others didn't concur. 'This number will not have any impact on the policy decision and hence a status quo can be expected,' said Madan Sabnavis, chief economist at Bank of Baroda . Live Events ET Bureau Stimulus for Demand CareEdge chief economist Rajani Sinha said, 'The Reserve Bank of India has already front-loaded the rate cuts anticipating moderation in inflation, hence we do not expect further rate cuts, unless economic growth weakens materially.' A basis point is 0.01 percentage point. In its last policy announcement on June 5, the RBI cut the repo rate by more than expected 50 basis points, delivering a cumulative one percentage point reduction in calendar 2025 to boost demand. It also lowered the cash reserve ratio (CRR) by 100 bps, but shifted its stance to neutral from accommodative, suggesting a pause on monetary action. Nayar reasons that a slowing economy may bring an August rate cut by the central bank's monetary policy committee (MPC). 'Given the weakness in a majority of the available high-frequency indicators, we foresee the gross domestic product (GDP) growth to print at 6.0-6.5% in Q1FY26, the data of which will only be available at end-August i.e. after the MPC's meeting,' said Nayar. The Centre will release GDP data for the June quarter in August. The MPC meets August 4-6. Low inflation is expected to help prop up demand. 'The declining inflation is expected to provide a significant boost to the real wages of the households in FY26,' said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra). Jasrai said one more 25 basis point cut could still occur this fiscal year unless there are surprises from global developments or growth hits a slump. Food inflation The average retail inflation rate was at a 25-quarter low of 2.7% in the June quarter, lower than the central bank's forecast of 2.9%, while average wholesale inflation dropped to a five-quarter low of 0.4%. Food inflation, a major component of CPI, slipped to deflation, coming in at -1.1%, the lowest in over six years. Core inflation, which excludes volatile food and fuel prices and signals demand pressures, rose to 4.4% in June, the highest since September 2023, largely due to an uptick in jewellery. Food inflation dropped due to a favourable base effect and a fall in prices of vegetables (-19%), pulses (-11.8%), and meat & fish (-1.6%). Cereal inflation hit a 41-month low of 3.7%. Out of 22 major states and union territories, 10 recorded inflation above the national average, with Kerala leading at 6.7%, followed by Punjab (4.7%), Jammu and Kashmir (4.4%), Uttarakhand (3.4%), and Haryana (3.1%). 'Such variation is symptomatic of varying food prices due to producing and consuming states being apart,' said Sabnavis. Wholesale inflation Food inflation, which accounts for around one-fourth of the WPI weight, fell to a two-year low of -0.3% in June from 1.7% in May. Major contributors to food deflation included onions (-33.5%), potatoes (-32.7%), vegetables (-22.7%), and pulses (-14.1%). Fruit prices eased to 1.6% year-on-year in June compared to 10.2% in May. 'The drop in prices of pulses was due to a robust kharif output,' said Jasrai. Inflation in manufactured products, which account for 64.23% weight in the WPI, eased slightly to 1.97% in June from 2.04% in May. Within this category, vegetable & animal oils and fats recorded the highest inflation at 23.1%, followed by food products (7%), and tobacco products (2.8%). Inflation in primary articles and fuel & power contracted by 3.4% and 2.7%, respectively. 'The fuel & power and crude petroleum and natural gas prices declined during June due to benign global commodity prices,' said Jasrai.
Economic Times
2 hours ago
- Economic Times
Retail inflation hits over 6-year low of 2.10% in June; WPI turns negative
Retail inflation in India dropped to 2.1% in June, the lowest level since January 2019, driven by a sharp decline in food prices, official data showed Monday. This marked the fifth consecutive month that inflation based on the Consumer Price Index (CPI) remained below the Reserve Bank of India's (RBI) 4% target. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Stimulus for Demand Food inflation Tired of too many ads? Remove Ads Wholesale inflation India's key inflation gauge dropped to pre-pandemic lows on the back of a sharp decline in food inflation, triggering hopes of another rate cut by the Reserve Bank of India (RBI). Retail inflation in June based on the Consumer Price Index (CPI) dropped to 2.1%, the lowest in more than six years and just shy of the lower end of the central bank's 2-6% target range, official data released Monday RBI is mandated to target 4% retail inflation within the range. This is the fifth consecutive month that CPI inflation has printed below 4%. Retail inflation is at its lowest since January 2019, when it was 1.97%.The Wholesale Price Index (WPI) slipped into the deflation zone, hitting a 20-month low of -0.1% in June against 0.4% in May. The drop in the inflation rate was driven by a decline in food and fuel prices and a moderation in manufactured goods. ICRA chief economist Aditi Nayar said a 25 bps cut in August cannot be ruled out, continuing the cuts seen this year in didn't concur.'This number will not have any impact on the policy decision and hence a status quo can be expected,' said Madan Sabnavis, chief economist at Bank of Baroda CareEdge chief economist Rajani Sinha said, 'The Reserve Bank of India has already front-loaded the rate cuts anticipating moderation in inflation, hence we do not expect further rate cuts, unless economic growth weakens materially.'A basis point is 0.01 percentage point. In its last policy announcement on June 5, the RBI cut the repo rate by more than expected 50 basis points, delivering a cumulative one percentage point reduction in calendar 2025 to boost demand. It also lowered the cash reserve ratio (CRR) by 100 bps, but shifted its stance to neutral from accommodative, suggesting a pause on monetary reasons that a slowing economy may bring an August rate cut by the central bank's monetary policy committee (MPC).'Given the weakness in a majority of the available high-frequency indicators, we foresee the gross domestic product (GDP) growth to print at 6.0-6.5% in Q1FY26, the data of which will only be available at end-August i.e. after the MPC's meeting,' said Centre will release GDP data for the June quarter in August. The MPC meets August inflation is expected to help prop up demand.'The declining inflation is expected to provide a significant boost to the real wages of the households in FY26,' said Paras Jasrai, associate director at India Ratings and Research (Ind-Ra). Jasrai said one more 25 basis point cut could still occur this fiscal year unless there are surprises from global developments or growth hits a average retail inflation rate was at a 25-quarter low of 2.7% in the June quarter, lower than the central bank's forecast of 2.9%, while average wholesale inflation dropped to a five-quarter low of 0.4%. Food inflation, a major component of CPI, slipped to deflation, coming in at -1.1%, the lowest in over six inflation, which excludes volatile food and fuel prices and signals demand pressures, rose to 4.4% in June, the highest since September 2023, largely due to an uptick in jewellery. Food inflation dropped due to a favourable base effect and a fall in prices of vegetables (-19%), pulses (-11.8%), and meat & fish (-1.6%). Cereal inflation hit a 41-month low of 3.7%.Out of 22 major states and union territories, 10 recorded inflation above the national average, with Kerala leading at 6.7%, followed by Punjab (4.7%), Jammu and Kashmir (4.4%), Uttarakhand (3.4%), and Haryana (3.1%).'Such variation is symptomatic of varying food prices due to producing and consuming states being apart,' said inflation, which accounts for around one-fourth of the WPI weight, fell to a two-year low of -0.3% in June from 1.7% in contributors to food deflation included onions (-33.5%), potatoes (-32.7%), vegetables (-22.7%), and pulses (-14.1%). Fruit prices eased to 1.6% year-on-year in June compared to 10.2% in May.'The drop in prices of pulses was due to a robust kharif output,' said in manufactured products, which account for 64.23% weight in the WPI, eased slightly to 1.97% in June from 2.04% in May. Within this category, vegetable & animal oils and fats recorded the highest inflation at 23.1%, followed by food products (7%), and tobacco products (2.8%). Inflation in primary articles and fuel & power contracted by 3.4% and 2.7%, respectively.'The fuel & power and crude petroleum and natural gas prices declined during June due to benign global commodity prices,' said Jasrai.
Time of India
4 hours ago
- Time of India
Currency watch: Rupee ends 12 paise lower at 85.92 against dollar; FPI outflows continue
The rupee weakened by 12 paise to close at 85.92 against the US dollar on Monday, hit by rising global crude oil prices and a firm greenback, even as the Reserve Bank of India stepped in to limit losses. The domestic unit had ended at 85.80 per dollar on Friday. At the interbank foreign exchange market, the rupee opened at 85.96 and moved in a tight band of 85.92 to 86.05 during the day before closing at 85.92. The local unit briefly slipped past the 86 mark but recouped some ground later in the session, PTI reported. Forex traders attributed the rupee's weakness to persistent foreign fund outflows, a stronger dollar index, and lack of progress in the proposed India-US bilateral trade agreement (BTA). A fresh round of BTA talks began in Washington on Monday and will continue till Thursday. 'The Indian rupee again fell as India-US trade deal was yet to be seen, while US President Donald Trump applied tariffs on the EU and Mexico, two of its biggest trading partners. Dollar index rose and kept the rupee lower for the entire day while Asian currencies were slightly weaker,' said Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like She's 75 and Retiring - Her Handcrafted Jewelry Is 80% OFF Artisan Weekly Read More Undo Brent crude futures rose 1.56% to $71.46 per barrel, exerting additional pressure on the rupee. The dollar index was up 0.03% at 97.82. Bhansali added, 'The Reserve Bank of India (RBI) was present to protect the rupee while FPIs, who were sellers of equity on Friday, were dollar buyers, keeping the rupee well bid for the whole day without any major correction. We expect the rupee to move between 85.75 and 86.25 on Tuesday as we await US CPI data.' On the domestic equity front, the BSE Sensex declined 247.01 points to 82,253.46 while the NSE Nifty shed 67.55 points to close at 25,082.30. Data from the commerce ministry showed wholesale price inflation (WPI) turned negative for the first time in 19 months, falling 0.13% in June on account of softening food and fuel prices and easing costs of manufactured products. Meanwhile, foreign institutional investors (FIIs) pulled out Rs 1,614.32 crore from Indian equities on Monday, as per exchange data. India's forex reserves declined by $3.049 billion to $699.736 billion in the week ended July 4, according to RBI data released on Friday. Stay informed with the latest business news, updates on bank holidays and public holidays . AI Masterclass for Students. Upskill Young Ones Today!– Join Now
