The assessment follows five years of work by banks to improve their loan books. Recent repayment problems were concentrated in microfinance and personal lending, where rapid credit expansion left some borrowers carrying more debt than they could repay. Mid-sized private lenders faced more of this strain than larger private banks and government-owned lenders.

That pressure is now moderating. The microfinance loan portfolio has fallen 25 percent from its March 2024 high of ₹4.4 trillion. Growth in unsecured consumer credit has also eased to roughly 12 percent, against 30 percent earlier, reducing the risk of further bad-loan accumulation.

Guarantee protection offers another cushion. At several banks, around 80–90 percent of microfinance loans have coverage under CGFMU, a government-backed guarantee scheme for micro units. The report points to this cover as support for bank earnings and protection against loan-quality stress.

MSME lending deserves continued attention after expanding at about 25 percent over recent years. While that pace raises repayment concerns, the report considers the risk manageable because most such loans have collateral. A worsening West Asia crisis or economic disruption linked to El Nino could still put these borrowers under pressure.