Small Finance Banks to Cross ₹2 Lakh Crore in Advances in FY26: Crisil Report

Kolkata, October 29, 2025 – Small Finance Banks (SFBs) are expected to cross ₹2 lakh crore in advances in the current fiscal, recording a growth of at least 16%, said a report by Crisil Ratings.

Strong Growth Backed by Diversification

The report pointed out that the growth momentum is driven by a continued rise in the non-microfinance segments along with a steady recovery in the microfinance loan portfolio, which had contracted in the previous fiscal year.

Most SFBs, which started their operations as microfinance institutions, have, over time, been diversifying their loan books. This has emerged as a strong pillar of growth for them and has helped reduce dependence on microfinance while containing asset quality risks.

Focus on Diversified Lending

Crisil said the share of non-microfinance loans that comprise mortgage, vehicle, and MSME advances has increased to 67% as of March 2025. The trend reflects a broader effort among SFBs to achieve portfolio balance ahead of their likely transition to universal banking.

SFBs should have gross and net non-performing assets below 3% and 1%, respectively, according to the norms laid out by the Reserve Bank of India, before getting a license for universal banking.

Deposits Maintain Retail Strength

On the liability side, retail deposits continue to dominate, with their share of total deposits still above 70% in the post-rate-hike period, while Crisil said the retail base remains strong, though there has been a gradual shift toward term deposits in the overall composition.

Industry Landscape

Currently, there are 10 small finance banks operational in India. The largest among them, AU Small Finance Bank, is now in the process of converting into a universal bank, further signalling the maturity and evolving business model of the industry.

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