MSME Loans Cross ₹40 Trillion in FY25 as Digitisation and PSL Drive Growth

According to a new report by CRIF High Mark, loans given to micro, small, and medium enterprises (MSMEs) grew 20% year-on-year, reaching ₹40 trillion by March 2025. This jump was mainly due to stronger priority sector lending (PSL) rules, government schemes, and the rise of digital lending platforms that made it easier for businesses to get credit.

Slower Growth in Active Loans

While overall credit expanded, the growth in the number of active MSME loans slowed sharply. In FY24, active loans grew 24%, but in FY25, they rose by only 1.3%, ending the year at 21.45 million loans.

Asset Quality Holds Steady

The report noted that MSME loan quality remained stable. Loans overdue by 31–90 days stayed at 1.7%—the same as last year. For loans overdue by 91–180 days, overdue rates improved to 1.2%. Loans overdue by over 180 days also improved by 90 basis points to 5.7%.

Credit Distribution Trends

Small exposure businesses made up the biggest share of total credit at 40%. However, micro businesses accounted for most of the active loans (81.1%). Credit to micro businesses grew nearly 20%, showing their increasing importance in the sector.

Who Leads the Lending?

• Public sector banks (PSBs) continued to dominate loans to micro enterprises, holding a 45.7% market share.
   
• Private sector banks led lending to small and medium businesses with about a 50% share.
   
• NBFCs (non-banking finance companies) have also grown their presence thanks to regulations that allow banks to classify lending to NBFCs (for on-lending to MSMEs) under PSL.

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Types of Loans MSMEs Use

Working capital loans remained the most common type, making up around 50% of all MSME loans. Among micro businesses, term loans increased their share from 37.5% to 39.7%, reflecting lenders’ growing confidence in this segment.

Cash credit was another key funding source but dipped slightly to 29.5% in March 2025 after rising in previous years.

Unsecured business loans to micro borrowers grew sharply from 5% to 8.5%, driven by digital and app-based lending. Meanwhile, the share of term loans fell from 18.3% to 15.3%, and commercial vehicle loans increased from 3.1% to 4.3%, showing more varied borrowing patterns.

Conclusion

While total MSME credit crossed the ₹40 trillion milestone in FY25 thanks to digitalisation, supportive policies, and PSL norms, the sharp slowdown in active loan growth signals caution. Overall, asset quality remained strong, and lending to micro businesses rose significantly, reflecting both confidence and the evolving needs of small enterprises.

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