Icra Highlights Risks in SME Lending Amidst Fixed Deposit Rate Stability

The domestic rating agency Icra has raised alarms regarding lenders' exposure to small and medium enterprises (SMEs), citing potential risks. The agency has also indicated that current fixed deposit rates have reached a stable point, making further rate cuts unlikely if the Reserve Bank of India maintains the status quo.

Icra has chosen to keep the banking system's credit growth projection for FY26 at 10.5%, while predicting that the assets under management of non-banking finance companies (NBFCs) will see an increase between 15–17%. Additionally, the agency has predicted a stable outlook for the banking sector for FY26, noting factors such as rising consumption, the impact of US tariffs, job market fluctuations, and concerns over asset quality as crucial elements to monitor.

Anil Gupta, a senior vice president at Icra, pointed out the emerging stress within lenders' SME portfolios, particularly for loans under Rs 25 lakh. Loan losses have surged to 3.4% by March 2025 from the previous year's 3%. Meanwhile, a separate executive, A M Karthik, noted that the US tariffs might impact banks more than NBFCs due to banks' higher exposure to exporters, though he did not expect a significant impact on the sector.

(With inputs from agencies.)