Kotak Bank Expects MSME Loan Demand to Rise in H2 -FY 2025

Kotak Mahindra Bank, a private-sector lender, is betting big on the micro, small, and medium enterprises (MSME) segment, expecting increased demand for working capital and term loans in the second half of the current fiscal year as Prime Minister Narendra Modi prioritizes rural development in his third term.

Kotak Mahindra Bank forecasts greater capex demand in infrastructure, agriculture, and related industries in the coming months.

“As consumption demand increases, working capital and term loan demand in the MSME space will improve,” said Manish Kothari, president and head of commercial banking at Kotak Mahindra Bank. “Utilisation is increasing by a few percentage points. I am optimistic that loan demand and utilisation will improve in the second part of this year.”

Kothari, who oversees Kotak Mahindra Bank’s commercial banking division of about ₹1 lakh crore, predicts a boost in capital investment from small and medium-sized enterprises.

“MSMEs have to be the trigger for growth because when the large corporate cycle kicks in the entire supply chain will move up the curve,” he stated. “The government schemes also help MSMEs, which boosts capex.

As volatility falls, MSMEs will want to stock more, and with inflation falling, I’m hopeful it will help working capital utilisation. We’re already seeing measured capex investments.

The most recent GDP figures show a decrease in rural consumption. This has prompted the newly formed NDA administration to announce specific changes aimed at boosting the rural economy, which has been pummelling by irregular weather and low rabi agricultural harvests.

Kothari also predicted that infrastructure investment will boost loan demand in the second half of the fiscal year. “The prediction of a normal monsoon is a big positive which means it should be a good season from the second half of this year,” he stated.

“The busy season begins in September, and with the NDA government returning, the continuation of infrastructure-related programmes is another positive indicator. The administration is already discussing providing assistance to rural areas and farmers because rural demand has been hurt. All of this is positive for the semi-urban and rural landscapes.”

Kothari noted that he looked for a shift in the interest rate cycle to help the funding environment. “One looks forward to the July budget to see what rural-related announcements are made. And if inflation falls with a decent monsoon, a shift in the interest rate cycle should help the financial climate,” he said.