MSMEs Emerge as Catalyst in Growth for Bank Credit in FY25

New Delhi, India – Micro, Small, and Medium Enterprises (MSMEs) is claiming top billing as frontrunners in contributing to bank credit growth during FY25, outpacing hitherto hugely competitive retail and services sectors. New figures released by the Reserve Bank of India (RBI) indicate that credit to MSMEs increased by a healthy 14.1 percent year-on-year, surpassing retail and services sectors at 11.7 percent and 11.2 percent, respectively. The contribution of the MSME sector to overall bank lending recently rose to a new high of 17.7 percent, with outstanding loans reaching INR 14.3 lakh crore (approx US$ 167 billion) by May-end 2025.

The MSMEs increased growth is despite a slowdown in overall bank credit in general, backed by asset quality improvement. The gross non-performing assets (GNPA) ratio in MSME loans decreased during this period between March 2024 and March 2025 to 4.5 percent and 3.6 percent, respectively. There was also a drastic decrease in the subprime borrower share from 33.5 percent in mid-2022 to 23.3 percent as of March 2025.

The small and medium enterprises have become major contributors to this growth and surpassed the micro enterprises in incremental loans/borrowings. Initiatives from the Government such as the Credit Guarantee Fund for Micro Units (CGFMU) and Emergency Credit Line Guarantee Scheme (ECLGS), have led to increased access to financing by the vulnerable businesses, guaranteeing almost INR 6.28 lakh crore (US$ 73.4 billion) of loans.

On the flip side, these schemes possess greater risks, with CGFMU and ECLGS recording 10.8 percent and 5.6 percent as non-performing assets (NPA) ratio, respectively. As MSMEs reinforce their position in the Indian economy, their capability of maintaining this progress will be of major observation in the coming months.

Image Source: Magic Wand Media

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