Bank Loan growth gets a lift from rising MSME credit, says report
Published on 19/12/2025 02:08 PM
As per the report of Axis Bank, the rise in MSME (micro, small, and medium enterprises) credit has been supporting the growth of loans to banks lately, which has been government regulations, credit guarantees, and the Udyam registration program facilitating.
The report mentions that MSMEs took up 22 per cent of non-food bank credit newly extended in FY25, thereby increasing their proportionate share in the total non-food credit to 18 per cent, which can be seen as an indicator of the sector's growing significance in Indian banking.
According to the report, the statistics showed that the government's micro, small and medium enterprises' (MSMEs) credit guarantee coverage has grown notably when compared to the fiscal year 2021.
The volume of guarantees has grown by over 4.8 million, from about 5.2 million in FY21 to more than 10 million by December 2024, and this further shows that there has been a tremendous rise in coverage within such a brief period.
In sequence with the escalation of the number of guarantees, the total credit guarantees sanctioned also rose from around Rs 2.6 trillion at the conclusion of FY21 to nearly Rs 8.1 trillion by the end of 2024.
The government’s Udyam portal for MSME registration has been complemented with measures that entice businesses to shift to the formal sector.
The increase in registration has provided better data and more transparency, thus making it simpler for banks to assess the creditworthiness of new and small borrowers and consequently lend more to them.
One of the major factors contributing to the growth of MSME credit has been the drastic reduction in interest rates, resulting in lower borrowing costs and, in turn, encouraging firms to apply for formal loans.
Gradually, banks have started to consider data-driven underwriting as a common practice where they rely on non-traditional data sources like GST returns and utility bills for obtaining credit ratings of the borrowers.
The overall conclusion of the report was that the mentioned factors of policy support, government guarantees, Udyam's formalisation and tech-based lending together have resulted in a good flow of credit to MSMEs.