PSBs driving rise in MSME loans in new credit; stress in small-ticket loans: Report

New Delhi: Lending by public sector banks has helped nearly double the share of loans to micro, small and medium enterprises during January to October 2025, a report said on Tuesday.

There are signs of stress in small-ticket, unsecured micro, small and medium enterprises (MSMEs) loans within the overall MSME credit, according to a report by Crisil Intelligence.

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"The share of incremental credit towards MSME loans increased to 32.5 per cent in the current period (year to October) from 17.7 per cent in the year-ago period," the report said, adding the proportion of MSMEs in outstanding credit increased by 1.74 per cent.

"There were some signs of stress in small-ticket size unsecured business loans," it said, maintaining that the asset quality of the MSMEs portfolio remained "satisfactory".

The jump in MSMEs was attributed to disbursements from public sector banks (PSBs), it said, adding that they are sticking to the much safer secured credit and the higher lending is also driven by changes in definitions.

However, the Crisil report also echoed findings in the Reserve Bank's financial stability report, which noted that PSBs have significant exposures to subprime MSME borrowers.

The Crisil report said 12.6 per cent of bank credit is exposed to US tariffs, with over 43 per cent of that exposure contributed by the textiles sector alone.

Share of retail secured credit also grew during the same period, the report said, adding that this grew to 31.3 per cent of the incremental credit from 24.5 per cent in the year-ago period.

This included housing loans at around 50 per cent of the incremental retail credit and gold loans accounting for more than a third, it said.

In line with the regulatory expectations, share of unsecured retail personal loans in incremental credit decreased to 9.7 per cent in October 2025, compared with 11 per cent in the previous year, it said, adding that retail unsecured loan growth slowed to 9.8 per cent on-year in October 2025 from 11.7 per cent in October 2024.

"This slowdown is attributed to concerns regarding overleveraging and the impact of the RBI's risk weight circular on unsecured retail loans," it said.

Amid a recovery in rural demand, the share of incremental credit in rural and semi-urban regions combined increased to 26.3 per cent as of September 2025 from 23.7 per cent as of September 2024, it said, pointing out that the share of metropolitan areas declined to 51.6 per cent from 56.2 per cent during this period.

Sluggish private capital expenditure led to a contraction in high-ticket industrial loans for banks during the period, it said.

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