Bank credit to MSEs grows 27% 

Bank lending to the micro and small sector (MSEs) has taken off sharply since March 2025. According to data from the Reserve Bank of India (RBI), credit to the MSE segment at Rs 9.54 lakh crore has risen 20.45% between March and October. On the year-on-year (y-o-y) basis, the rise is even more impressive at 27%. 

At the same time, loans to large corporates have also been inching up. In October, the overall loans to large corporates stood at Rs 28.41 lakh crore – the highest in 7 months with a 5.6% y-o-y growth. Overall, bank credit to the industry has improved 11% in the past year – from Rs 37.74 lakh crore to Rs 41.93 lakh crore.  

MSEs now account for nearly 23% of total bank lending

With this sharp rise, MSEs now account for nearly 23% of total bank lending to industry in October, up from 20% in March 2025. A senior banker from private sector said, “To protect business, banks (both PSUs and private) moved their focus to MSEs, which helped them safeguard margins in a falling interest rate regime.”  

The surge in the loan growth comes after the banks began to refocus their efforts towards MSEs to protect business, profitability, and margins in a falling interest rate environment, even as large corporates increasingly turned to capital markets, including bonds, instead of bank loans. This also comes at the time when the government has been nudging banks to lend to these segments more liberally. 

Rise in MSE lending

Month-on-month, the lending to MSE grew by 4%. After October 2024, the segment witnessed a consistent rise in bank credit, contrasting to a flat trend observed earlier. The monthly average credit to the segment between March 2024 and October 2024 has been at Rs 7.36 lakh crore.

While credit to MSE has been rising steadily, October also witnessed a revival in bank credit to large corporates, which touched a seven-month high at Rs 28.41 lakh crore, surpassing the previous peak of Rs 27.84 lakh crore in March 2025. On a month-on-month basis, lending rose 2% from Rs 27.82 lakh crore in September 2025.  

“The rise in bank lending to large corporates marks a welcome change after years of stagnation, but it does not yet signal a revival,” said Sanjay Agarwal, Senior Director at CareEdge Ratings. He cautioned against reading too much into the numbers. “Corporate lending had been extremely sluggish for several years, meaning any new growth appears as a significant percentage increase,” he added.  

Agarwal pointed to structural factors shaping the trend. Corporates had earlier relied on IPO proceeds to fund capital expenditure and repay loans, reducing their dependence on banks. 

Despite the rise, bankers remain cautious. Anu Aggarwal, President and Head Corporate Banking at Kotak Mahindra Bank, said, “The lending to large corporates still has a long way to go. They aren’t coming to banks, rather they are continuing to tap bond markets for their funds.” She added that with the recent rate cut, one can hope to see some shift towards bank funding, but real growth will happen when corporate capex takes off. 

The composition of bank lending reflects this shift. Large corporates accounted for 67.7% of total industry lending in October, down from 68.2% in September and 71% in March. Medium-sized industries (bank credit at Rs 28.41 crore) stand at 9.5%, marginally higher by 34 basis points since March. Banks deepening their engagement with MSMEs has been both a survival strategy and a way to protect profitability, where demand was stronger and competition from capital markets limited.  

Devang Mehta, Deputy Managing Director & CIO-Equity NDPMS, Spark Capital PWM, said, “Capacity utilisation above 80–85% is visible only in select pockets, and therefore the recent rise in bank credit to large corporates should be seen as a selective uptick as we still await a broad-based revival.”

He added that corporate balance sheets may be lean and clean, but the lending story is concentrated towards a few sectors and companies. Capex-led credit growth is visible, yet it is driven by a handful of expansionary giants rather than a systemic cycle.  

Data on Bank credit to industry