Early stress signs emerge in MSME credit: Report

MSME credit growth has slowed significantly in recent months, with manufacturing and trade segments showing early signs of stress as lenders adopt a more cautious approach amid global uncertainties.

Written by FE Bureau

June 2, 2026 18:34 IST

Rising working capital utilisation and a modest increase in early-stage delinquencies indicate emerging pressure points in the MSME sector, even as overall portfolio quality remains stable.

The micro, small and medium enterprises (MSME) loan segment has begun to experience a slowdown, with signs of moderation becoming visible in credit growth, lending activity, and certain borrower segments amid persistent geopolitical uncertainties.

According to a report by CRIF High Mark, between December 2025 and April 2026, MSME credit growth slowed to 3.1%, compared to 9.7% in the corresponding period a year ago. Active loans declined 3.5% against a 3.0% growth last year. These numbers reflect the potential impact of global uncertainty on domestic MSME credit supply.

India’s MSME credit exposure stood at approximately Rs 46 lakh crore as of April 2026, marking a 12.8% year-on-year growth.

The report has highlighted that manufacturing and trade sectors are showing signs of stress. Supply chain-linked industries such as shipping & transport, food processing, and auto & ancillaries have recorded notable declines in credit exposure.

Manufacturing credit growth moderated to 4.3% between December 2025 and April 2026, from 10.4% last year. Manufacturing and trade account for 60% of the MSME loan portfolio.

Early-stage delinquencies in manufacturing also rose marginally during the period. “However, these movements may also reflect cyclical factors and merit ongoing observation to gauge their persistence,” the report said.

The credit bureau report said early-stage delinquency started showing stress in some segments though overall portfolio health remains stable. Besides manufacturing, portfolio-at-risk (31–90 days) has edged higher for PSU banks (2.7% to 3.0%), and cash credit (1.6% to 1.9%).

These early indicators reflect the need for continued monitoring amid sustained policy support to ensure stable credit flow and long-term sectoral growth, the report said.

Working capital utilisation has also increased, indicating that businesses are moving to existing credit lines to manage operational and supply chain pressures. Utilisation has climbed to about 73% for cash credit limits and around 70% for overdraft facilities as of March 2026. This elevated usage remains an important metric to track, especially if things get worse.

The report noted that lenders have turned more cautious, with credit growth easing across institutions, signalling greater risk sensitivity in the face of global uncertainty.

The MSME portfolio of non-bank lenders saw a decline of 1.6% between December 2025 and March 2026, compared to a growth of 6.4% a year ago. State-owned banks reported a decline of 0.2% during the period compared to a 3.5% growth in the same period last year.

This article was first uploaded on June two, twenty twenty-six, at thirty-four minutes past six in the evening.