Who’s Funding India’s Small Businesses Now? Private Banks Lead, PSBs Slip
India’s small business lending landscape is undergoing a quiet but telling shift. Private sector banks continue to dominate enterprise credit, but it is non-banking financial companies (NBFCs) that are steadily gaining ground—largely at the expense of public sector banks (PSBs), according to a joint report by SIDBI and CRIF High Mark
The report defines small businesses as enterprises with aggregate credit exposure of up to ₹5 crore from the formal financial system. As of September 2025, private banks remained the largest lenders to this segment, although their market share showed minor volatility. PSBs followed closely but saw their share decline from 39.3% in September 2023 to 37.8% in September 2025.
That lost ground has largely been absorbed by NBFCs, signalling a gradual but clear rebalancing in the lending ecosystem. NBFCs have been particularly successful among sole proprietors, where they now command more than 41% of the lending share—underscoring their agility and deeper reach in smaller, less formalised enterprises.
Overall credit exposure to small businesses touched ₹46 lakh crore as of September 2025, registering a strong 16.2% year-on-year growth. On a quarter-on-quarter basis, growth stood at 1.5%. Active loan accounts also expanded sharply, rising 11.8% year-on-year to 7.3 crore accounts.
The report attributes this sustained momentum to a series of policy interventions and government-backed credit schemes aimed at strengthening MSME financing. However, growth has moderated compared to the previous quarter, when year-on-year expansion was a sharper 19.3%. This cooling reflects more cautious underwriting by lenders as well as seasonal factors.
Notably, credit outstanding is growing faster than loan volumes, indicating an increase in average ticket sizes. In terms of product mix, working capital loans continue to dominate, accounting for nearly 57% of enterprise credit outstanding. Term loans remain crucial for capital expenditure, while among sole proprietors, loans against property (LAP) form the largest share, followed by business and commercial vehicle loans.
Unsecured lending also remained a bright spot. Despite concerns around stress in select pockets, unsecured loans grew a robust 31% year-on-year, highlighting sustained risk appetite among lenders and continued demand from small businesses navigating growth and working capital needs.