Synopsis
Small financial banks are strengthening their risk management. They plan to reduce unsecured loans and boost secured loans like auto and home loans. Credit guarantee schemes will cover more microfinance loans. This strategy aims to prevent asset quality issues. Banks like ESAF, Suryoday, Ujjivan and Utkarsh are implementing these changes to ensure stability and growth.
AgenciesAfter the sharp rise in bad debts, SFBs could also resort to a credit guarantee system to improve their business.Kolkata: Small financial bankswho were hit hardest by the microfinance crisis in terms of asset quality stressed, seek to deepen their risk-driven reset in 2026 and further reduce the share of unsecured activities. They also plan to increase the share of securities loans credit guarantee coverage to avoid further erosion of asset quality.
This strategy remains similar for all small finance banks with high exposure to microfinance, especially for ESAF, Suryoday, Ujjivan and Utkarsh, which hold a high share of unsecured portfolio.
Growth in guaranteed loan to small businesses, and offering auto loans, affordable home loans and gold loans to their customer segment remains the priority.
The Reserve Bank of India’s decision to reduce the priority sector lending target for SFBs to 60% of adjusted net bank credit from 75% earlier has made it easier for these lenders to diversify beyond microfinance.
Ujjivan’s 52% portfolio was unsecured as of end-December 2025, while the share of unsecured books was 45% for Suryoday and around 37% for ESAF. Utkarsh, the bank with the highest bad loan ratio at 12.4% among its peers at the end of September, had 53% of the portfolio unsecured while the latest figure after the end of the third quarter was not available.
The group of small finance banks as a whole saw about 22% of its unsecured microfinance portfolio deteriorate in March last year, while the sectoral NPA, including write-off accounts, was about 16%.
As part of the risk-first strategy, ESAF plans to reduce the share of unsecured loans to 30% of its total portfolio by March 2027. “We continue to focus on gold loans, mortgage loans and mobility loans,” a senior executive said.
Suryoday aims to bring down the unsecured portion to 35-40% by FY27.
Ujjivan would take longer to reduce the unsecured portion. According to a five-year business strategy adopted last year, the bank plans to reduce it to 30-35% by FY30, with the rest made up of a secure portfolio.
For Utkarsh, the aim is to have a secured loan share of over 50% in the next two to three years.
Their risk reduction strategy is to subscribe as much as possible to the government guarantee for microfinance loans under the Credit Guarantee Fund for Micro Units (CGFMU) program.
Lenders said a majority of new loans are covered by a credit guarantee managed by the National Credit Guarantee Trustee Company, which helps them increase the share of guaranteed loans and stabilize asset quality.
Jana Little Financial Bankfor example, aims to place 70% of its unsecured loans under the guarantee program by the end of this fiscal year, a person familiar with the matter said. Jana’s share of the unsecured portfolio was approximately 27%.
Suryoday, one of the first to subscribe to guarantee coverage, continues this strategy by allowing it to hold approximately 98% of the microfinance portfolio under the CGFMU program.
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