Kolkata: Small finance banks are likely to see an improvement in their asset quality this financial year, with their gross non-performing assets (GNPAs) projected to decline by about 120 basis points to 2.6-2.8% by March 2027, Crisil Ratings said.Their GNPAs stood at 3.8% and 4.4% at March-end this year and last year, respectively.Read more: Small finance banks' asset quality to improve, GNPA to fall by March 2027: Crisil RatingsCrisil Ratings said the improvement would be driven by a recovery in the credit performance of the microfinance portfolio, alongside continued growth and increasing contribution from the non-microfinance portfolio, where asset quality is expected to remain stable."Tighter underwriting by SFBs (small finance banks) has improved borrower selection, materially strengthening the asset quality of microfinance portfolios," said Aparna Kirubakaran, director, Crisil Ratings.Read more: Need stronger governance, internal controls in urban cooperative banks: RBI Deputy GuvGross NPAs from the microfinance book are likely to ease to 3.8-4% by March 2027 from 7.6% at the end of 2025-26, after having declined from a peak of 8.4% recorded a year earlier, according to the rating agency.Borrower over-indebtedness caused significant credit stress in the microfinance portfolio during the past two fiscals.