MSME Credit top ₹40 trn; growth in active loans slowdown in FY25: CRIF

Credit to MSMEs grew 20% in FY25 to ₹40 trillion, driven by PSL norms, digitisation, and government support, even as active loan growth and term loan share moderated

Credit to the micro, small, and medium enterprises (MSME) sector crossed ₹40 trillion, registering a robust 20 per cent year-on-year (Y-o-Y) growth as of March 2025. This growth was primarily driven by strengthened priority sector lending (PSL) norms, targeted government initiatives, and increased digitalisation, which collectively enhanced lending capacity and improved credit accessibility across the sector, said a report by CRIF High Mark.

 

Having said that, according to the report, the growth in active loans dropped to 1.3 per cent Y-o-Y in 2024-25 (FY25), standing at 21.45 million at the end of March 2025. In FY24, growth in active loans was 24 per cent Y-o-Y.

 

 

Data suggests that the MSME portfolio is holding up well in terms of asset quality, with the portfolio at risk (PAR) in the 31-90 days bucket at 1.7 per cent as of March 2025 — the same level as in March 2024. Asset quality has improved in the 91-180 days bucket, where PAR declined to 1.2 per cent, and in the 180+ days bucket, it stood at 5.7 per cent, an improvement of 90 basis points (bps) from the previous year.

 

In terms of credit distribution, small exposure businesses accounted for the largest share of total credit outstanding at 40 per cent while micro exposure businesses dominated in terms of volume, representing 81.1 per cent of all active loans as of March 2025. Notably, credit exposure to micro businesses rose 19.7 per cent Y-o-Y, underscoring their growing significance in the MSME lending landscape.

 

Public sector banks (PSBs) continued to lead in the micro segment, holding a 45.7 per cent market share, whereas private sector banks dominated lending to small and medium exposure businesses, with a combined market share of approximately 50 per cent. Additionally, non-banking financial companies (NBFCs) have expanded their footprint across various borrower segments, supported by regulatory measures that allow bank credit to NBFCs for on-lending to small industries to be classified under PSL (priority sector lending). 

 

The report further said that working capital loans remained the most prevalent, accounting for roughly 50 per cent of the total portfolio, reflecting the cyclical and operational needs of MSMEs. Among micro businesses, the share of term loans increased from 37.5 per cent in March 2024 to 39.7 per cent in March 2025, indicating rising lender confidence in the segment, likely bolstered by supportive policy frameworks. Cash credit remained a key source of funding for micro businesses, increasing from 30 per cent in March 2023 to 31.8 per cent in March 2024, before dipping slightly to 29.5 per cent in March 2025.

 

Meanwhile, unsecured business loans for micro borrowers rose significantly from 5 per cent to 8.5 per cent between March 2024 and March 2025, driven largely by the growing popularity of digital and app-based small-ticket loans. In contrast, the share of term loans declined marginally from 18.3 per cent to 15.3 per cent while commercial vehicle loans rose from 3.1 per cent to 4.3 per cent during the same period, pointing to a diversification in credit utilisation patterns.