The outlook points to an improvement in loan-book health for small finance banks during the financial year. The projected reduction concerns gross non-performing assets, or GNPAs, which indicate the share of loans classified as bad before provisions are taken into account. It is a forecast, rather than a decline already recorded.

A recovery in microfinance lending is expected to support the improvement. At the same time, steady growth in lending outside microfinance is also part of the outlook. The report therefore links the expected change to both a recovering microfinance portfolio and continued stability in the expansion of other lending.

Stricter loan appraisal practices also feature in the report's account of the sector. However, the supplied material does not give bank-wise projections, a starting GNPA ratio or the final ratio expected for March 2027. The 120-basis-point decline should therefore not be read as an identical outcome for every small finance bank.