How MSMEs Are Driving Bank Credit Growth in 2025

The latest RBI bulletin has made one thing clear — India’s MSMEs are taking center stage in the country’s credit growth story. For years, large corporates dominated credit demand, but now the tide is shifting as small and medium businesses expand aggressively. This shift is not only good for banks but also vital for India’s economic resilience. Why are MSMEs driving credit demand? For one, government schemes such as the Emergency Credit Line Guarantee Scheme (ECLGS) and sector-specific incentives have reduced risks for both lenders and borrowers. Secondly, with festive demand approaching, MSMEs in manufacturing, retail, and services are actively seeking working capital to scale up operations. Unlike large corporates that are waiting for clearer global signals, small businesses are seizing opportunities immediately. This development has several implications for the Indian economy. Increased credit flow to MSMEs can boost employment generation, local entrepreneurship, and regional economic stability. Moreover, MSMEs often function in supply chains linked to larger firms, meaning their growth indirectly benefits big corporates too. For banks, this is both an opportunity and a challenge. Serving MSMEs means dealing with diverse risk profiles, but with better digital credit assessment tools and stronger recovery mechanisms, lenders are increasingly confident in expanding this portfolio. As we move further into FY26, the credit health of MSMEs will likely determine the overall trajectory of India’s banking sector.