Mad religions, sadly causing dismay (12)
I believe the answer is:
demoralising
'causing dismay' is the definition.
'mad religions sadly' is the wordplay.
'sadly' indicates an anagram.
'mad'+'religions'='madreligions'
'madreligions' with letters rearranged gives 'DEMORALISING'.
(Other definitions for demoralising that I've seen before include "Causing (someone) to lose hope" , "Causing loss of hope" .)