Synopsis: Public sector banks nearly doubled MSME loan share in fresh bank credit to 32.5% in January–October 2025, driven by secured lending and regulatory priority, according to Crisil Intelligence. However, the report warns of stress in small-ticket unsecured MSME loans, despite overall satisfactory asset quality, and highlights slowing unsecured retail credit growth. PSB exposures to subprime MSME borrowers and a shift toward rural lending underscore evolving credit dynamics.
New Delhi: Public sector banks (PSBs) have significantly expanded credit to the micro, small and medium enterprises (MSME) segment, nearly doubling the share of incremental MSME loans in overall bank credit during January–October 2025, a new Crisil Intelligence report said on Tuesday.
Source: Internet
The share of MSME loans in fresh credit extended by banks jumped to 32.5% in the first ten months of FY26 from 17.7% in the same period last year, while MSMEs’ share in total outstanding credit rose by 1.74 percentage points. This surge has been largely driven by lending from PSBs, which continue to prioritise priority sector targets and secured credit disbursements, aided by updated regulatory definitions.
Despite this expansion, the report flagged incipient stress in small-ticket unsecured MSME loans, particularly at the lower end of the credit spectrum. While overall asset quality in the MSME portfolio remains within satisfactory bounds, early warning indicators suggest higher delinquencies and repayment strain for these tiny exposures.
Retail credit trends also reflected a shift in bank lending patterns. Secured retail loans, such as housing and gold loans, increased their share in incremental credit to 31.3%, up from 24.5% a year ago, whereas unsecured personal loans declined to 9.7% of new credit. Growth in unsecured retail lending also slowed to 9.8% on-year in October 2025.
Crisil’s findings echo concerns raised in the Reserve Bank of India’s Financial Stability Report, which noted significant exposures by PSBs to subprime MSME borrowers, potentially amplifying credit risk if economic conditions weaken.
The report also highlighted wider macro trends: an uptick in credit flow to rural and semi-urban areas and a contraction in large-ticket industrial lending, reflecting subdued private capital expenditure.
