Public Sector Banks Boost MSME Credit Amid Growing Stress

Public sector banks have nearly doubled their share of loans to micro, small, and medium enterprises (MSMEs) from January to October 2025. Crisil reports stress within small-ticket, unsecured MSME loans but notes overall asset quality remains satisfactory. Rural demand recovery increased rural credit share, while metropolitan areas saw a decline.

Public sector banks are playing a crucial role in almost doubling the share of loans offered to micro, small, and medium enterprises (MSMEs) between January and October 2025, according to a Tuesday report by Crisil Intelligence.

The report highlights signs of stress within the MSME sector, particularly concerning small-ticket, unsecured business loans, though the overall asset quality of this sector's portfolio remains satisfactory. Lending increases are attributed to public sector banks sticking to safer secured credit and altering their definitions.

Crisil's report echoes the Reserve Bank's findings on public sector banks' exposure to subprime MSME borrowers. Additionally, while retail secured credit grew, high-ticket industrial loans experienced contraction amid sluggish private capital expenditure, and rural credit benefitted from a recovery in rural demand.

(With inputs from agencies.)