India’s MSME Sector Sees 67% Drop in NPAs Backed by Policy Support and Digital Reforms

India’s Micro, Small and Medium Enterprises (MSME) sector is undergoing a financial transformation with Non-Performing Assets (NPAs) shrinking significantly and credit access growing at an unprecedented rate. Policy support and digital reforms continue to drive this shift, redefining the sector’s economic role.

67% Drop in NPA: Historic Fall in MSME NPAs

According to the Ministry of MSME’s latest data, gross NPAs in the sector have plummeted to 3.59% as of March 31, 2025, from a steep 11.03% in FY20, marking a 67% reduction in just 5 years. This remarkable improvement points to better credit practices and financial discipline among businesses. 

Complementing this, bank credit to MSMEs has surged by over 210% in the last decade, jumping from ₹10 lakh crore in 2014 to ₹31.10 lakh crore in 2025. In FY25 alone, MSME credit grew by 13% YoY, outpacing the 6.1% rise seen by large enterprises.

Revised MSME Definition Expands Formal Economy

Effective April 1, 2025, the Ministry revised the MSME definition by increasing investment thresholds by 2.5 times and doubling turnover limits. This move intends to pull a greater number of informal firms under the formal credit ecosystem, giving them better access to financial tools and schemes. As a result, formal MSME registration has jumped sharply, supported by digital platforms like the Udyam Registration Portal and Udyam Assist Platform (UAP). 

Registered MSMEs soared from 1.65 crore in April 2023 to 6.5 crore in June 2025,  an almost 4 times increase in just over 2 years.

Economic Contributions Continue to Strengthen

MSMEs now contribute 31.1% to India’s GDP, account for 35% of manufacturing output, and generate 45% of export revenues. They are also the second-largest employment source after agriculture, providing jobs to over 28.1 crore individuals. Further reinforcing their relevance, MSMEs contribute more than ₹5 lakh crore annually to Goods and Services Tax (GST) collections, playing a vital role in the country’s revenue backbone.

Read More: MSME Loans Cross ₹40 Trillion in FY25 as Digitisation and PSL Drive Growth! 

Diversity and Inclusive Growth in MSMEs

Social inclusiveness within the sector is improving as well. Around 45% of MSMEs are owned by individuals from SC, ST, and OBC groups. Women now own 40% of MSME enterprises, indicating rising female entrepreneurship. Out of 6.5 crore registered MSMEs, 98% are Micro enterprises, while Small and Medium enterprises make up only 1% and less than 1% respectively.

Conclusion

India’s MSME sector has shown strong signs of resilience and formality, with drastic reductions in NPAs and a sharp spike in credit availability. Government initiatives, digital adoption, and inclusive policies have all worked together to shape a dynamic and transformative phase for the sector. With continued support, MSMEs are poised to play an even larger role in India’s economic future.

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