Chennai: The formal credit to micro, small and medium enterprises have doubled in the five years since the pandemic. While private banks hold the largest share of credit to MSMEs, NBFCs have seen the fastest growth in lending.
MSME lending has witnessed robust growth in recent years. The total credit offered to MSMEs by private banks, PSU banks and NBFCs stood at Rs 18.6 lakh crore in FY21 and it is expected to touch Rs 38.3 lakh crore by this fiscal-end – growing by 106 per cent. Last fiscal, formal credit to MSMEs had touched Rs 34 lakh crore.
Of this, private banks saw credit growing from Rs 7.9 lakh crore to Rs 16.1 lakh crore in FY25 and is expected to further grow to Rs 18.5 lakh crore. PSU Banks saw credit moving up from Rs 9.1 lakh crore to Rs 13.5 lakh crore and Rs 14.8 lakh crore by this fiscal, as per the data of Care Ratings.
NBFCs saw the fastest growth in MSME credit from Rs 1.6 lakh crore to Rs 5.3 lakh crore in FY26. NBFCs emerged as key players in MSME lending, recording a 32 per cent CAGR from FY21 to FY24, outpacing growth rates of private banks (20.9 per cent) and public sector banks (10.4 per cent). The share of MSME loans in NBFCs’ total loan portfolio increased from 5.9 per cent in FY21 to 9.1 per cent.
The growth in MSME credit was underpinned by initiatives such as Udyam registration, GST Sahay, TREDS, and the development of digital public infrastructure, alongside enabling policy measures and credit guarantee schemes. The pandemic saw the launch of several initiatives to support the MSMEs.
Within MSME credit, Loan Against Property (LAP) has seen remarkable growth of 50 per cent, expanding from Rs 7.5 lakh crore to Rs 11.3 lakh crore over the two years ending September 2024. Within this, the Micro LAP segment experienced even higher growth, rising by 60 per cent. NBFCs dominate the Micro LAP segment of loans below Rs 10 lakh with a 45 per cent market share.
