India’s MSME sector has maintained a steady upward trajectory, with commercial credit demand growing 11% year-over-year in the Jan–Mar 2025 quarter, while portfolio growth reached 13% on the back of improved asset quality and increased originations to new borrowers.
According to the May 2025 MSME Pulse Report by TransUnion CIBIL and SIDBI, the total MSME credit portfolio stood at ₹35.2 lakh crore as of March 2025. The sector has also shown a notable reduction in balance-level delinquencies, which fell to 1.79% — the lowest in five years — indicating strengthening borrower behaviour and improved credit monitoring across financial institutions.
New-to-credit borrowers power growth
Despite a slight dip in share, new-to-credit (NTC) borrowers continue to play a pivotal role in sectoral expansion. In Q4 FY25, NTCs made up 47% of all new loan originations. Notably, public sector banks accounted for 60% of originations to NTC borrowers. These borrowers were most active in the trade sector, though the manufacturing segment saw the highest year-on-year growth of 70% in NTC volumes.
Lenders have begun placing increasing emphasis on integrating borrower credit histories across individual and entity levels. Institutions that adopted this comprehensive approach recorded a 40% improvement in borrower performance. Yet, only a limited number of lenders currently leverage both consumer and commercial credit data during the underwriting process.
Regional dynamics and sector shifts
Five states—Maharashtra, Gujarat, Tamil Nadu, Uttar Pradesh, and Delhi—contributed nearly half (48%) of the total originations by value in Jan–Mar 2025. While Maharashtra and Gujarat continue to dominate manufacturing-led credit, Uttar Pradesh stands out for its trade-based lending, driven by products like cash credit, overdrafts, and demand loans.
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Across the board, private sector banks remained dominant in disbursing large-ticket loans, while PSBs continued to focus on smaller exposures. Manufacturing still holds the largest share of originations by value at 34%, but professional services and other sectors are steadily gaining ground, now comprising 36% of originations.
Strengthening credit access through CGTMSE
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) continues to be a key enabler in reducing risk and expanding credit reach. FY25 marked a milestone with ₹3.06 lakh crore in guarantees—an all-time high and a 51% year-on-year increase. Recent policy enhancements, including increased guarantee limits and special provisions for women-led and informal enterprises, have made the scheme more inclusive and impactful.
Automation of the guarantee process and policy reforms like fee reductions and expanded eligibility have further strengthened credit accessibility. Over 27 lakh beneficiaries have been supported in FY25 alone, underlining the scheme’s growing significance.
Outlook
With 6.35 crore MSMEs registered under Udyam as of May 2025—but only 3.68 crore having ever accessed formal credit—the untapped potential in the sector remains significant. Continued emphasis on digital underwriting, better risk profiling, and ecosystem-wide data integration can pave the way for inclusive and sustained credit expansion.
As India marches toward its Viksit Bharat goals, empowering MSMEs with timely, tailored, and tech-driven financial support remains a crucial lever for long-term economic transformation.