Small Business Loan Growth Slows, Early Signs of Stress Emerge Amid West Asia Conflict

MSME Credit Growth Moderates Amid Global Uncertainty

India's micro, small and medium enterprises (MSME) credit growth has shown signs of stress, particularly in micro businesses and manufacturing-related sectors, according to a report by credit information company CRIF High Mark. The report highlights the need for close monitoring of emerging stress pockets in the sector.

As of April 2026, the MSME exposure (MSMEx) portfolio outstanding stood at around Rs 46 lakh crore, registering a 12.8 per cent year-on-year growth. This growth, however, has slowed significantly, with the portfolio outstanding rising only 3.1 per cent between December 2025 and April 2026, compared to 9.7 per cent growth in the corresponding period a year ago.

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The report notes that while the sector has remained resilient amid geopolitical disruptions, supported by domestic demand and continued credit flow, early-stage stress signals are becoming visible in select borrower segments, industries, and lender groups. Micro businesses, which account for nearly 86 per cent of active MSME loans, showed relatively higher vulnerability, with early-stage delinquency, measured as portfolio at risk (PAR) in the 31-90 day bucket, standing at 2.7 per cent in April 2026.

Further, micro active loans contracted 4.6 per cent between December 2025 and March 2026 against a 1.5 per cent growth in the corresponding period of the previous year. The report also notes that manufacturing and trade, accounting for nearly 60 per cent of the MSME portfolio outstanding, witnessed slower credit momentum.

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Manufacturing credit growth eased to 4.3 per cent between December 2025 and March 2026, down from 10.4 per cent in the year-ago period, and further contracted 3.1 per cent between March and April 2026. The report attributed this to seasonal factors.

The report also flagged a rise in early-stage stress in manufacturing, with PAR 31-90 inching up to 1.8 per cent in April 2026 from 1.6 per cent in March. On the lender side, lending momentum moderated across categories, particularly among PSU banks and non-banking financial companies (NBFCs).

Despite the moderation, the report said the MSME sector has so far navigated global uncertainty relatively well, aided by domestic demand resilience, diversified lender participation, and government-backed support measures. However, emerging stress pockets warrant close monitoring.