India’s Credit Growth Slows, But MSMEs Power Through the Downturn

India’s banking sector is facing a cooling phase in credit growth, but small businesses are writing a different story. The latest research report from the State Bank of India (SBI) reveals that while overall lending activity has lost momentum, MSMEs are showing sustained strength, marking them as a key driver of credit expansion in an otherwise muted landscape.

The broader credit market is clearly decelerating. With inflation concerns, high interest rates and tighter liquidity, banks are treading cautiously. Large corporates have turned conservative and even retail lending once a growth engine has begun to plateau. However, credit to micro, small and medium enterprises has not only stayed resilient but is also growing in double digits.

This divergence signals a larger transformation in India’s lending patterns. MSMEs are no longer just a policy focus they are emerging as an economic force, supported by more agile lending frameworks, improved digital infrastructure and government-backed credit guarantees. SBI’s report suggests this shift is structural, not seasonal. The data indicates growing appetite among MSMEs to invest, expand and formalize their operations.

What’s even more notable is the geographic spread of this growth. It’s not limited to industrial hubs or metros. Small enterprises in semi-urban and rural districts are increasingly tapping into institutional finance an encouraging sign of deeper credit penetration and inclusion. In fact, SBI’s analysts point to this spread as a quiet but powerful contributor to local employment and economic resilience.

The momentum in MSME credit also highlights improved risk management at banks. The perception that small enterprises are inherently high-risk is giving way to more nuanced, data-driven lending. Fintech integration, better cash-flow tracking and more responsive financial products are helping banks lend more confidently to this segment.

In contrast, corporate credit remains sluggish, held back by global uncertainties and cautious investment sentiment. But as MSMEs continue to access capital and invest it productively, they’re helping sustain credit growth at a time when larger players are in wait-and-watch mode.

For India’s economic trajectory, this trend could be a turning point. If credit continues to flow toward the MSME sector, it may well serve as the backbone of India’s next phase of inclusive, job-rich growth.

You can access the full SBI report here.