US Tariffs Predicted to Push MSME NPAs to 3.9% by FY26

A domestic rating agency predicts that US tariffs on Indian exports will cause an increase in non-performing assets (NPAs) in the MSME sector to about 3.9% by FY26. The sector is particularly affected in textiles, garments, gems, and seafood, amid concerns on credit risks tied to rapid growth.

In a recent report, a domestic rating agency has forecasted that the non-performing assets (NPAs) for the micro, small, and medium enterprises (MSME) portfolio within the banking system are set to rise moderately to around 3.9% by the end of FY26.

This increase is primarily attributed to the 50% tariffs that the United States has imposed on Indian exports, a move that affects various MSME sub-sectors including textiles, garments, and processed seafood.

The report also highlights potential risks in aggressively expanding credit to MSMEs, pointing to past instances where rapid sector growth led to higher NPAs. Meanwhile, the overall system-level NPAs are projected to remain controlled, owing in part to banks' aggressive write-off policies.

(With inputs from agencies.)