MSME Loans Under Pressure Amid West Asia Conflict

CRISIL Ratings has raised concerns about the mounting pressure on loans extended to the micro, small, and medium enterprise (MSME) segment in light of the ongoing West Asia conflict. This situation is compounded by loans issued during a high-growth phase, according to a recent report by the agency.

The MSME segment, representing around 19 percent of all bank credit as of March 2026, could be significantly impacted by geopolitical tensions. However, government interventions are anticipated to alleviate the resultant stress, thereby curbing the potential rise in bank non-performing assets (NPAs), the report suggests.

Additional support measures, such as a credit guarantee scheme, might be rolled out to sustain asset quality, mirroring strategies employed during past crises like the Covid-19 pandemic. Subha Sri Narayanan, Director at Crisil Ratings, noted that although measures previously led to a decline in NPA rates within MSMEs, current conditions could push these rates higher to 3.4-3.6% this fiscal year.