India’s new labour rules may end up changing far more than the way companies hire. As the pressure of compliance lifts, Ambit Capital said thousands of small businesses, and especially women entrepreneurs, could finally find it easier to borrow and grow. The brokerage believes this shift could set off a new wave of credit demand, giving banks and NBFCs a rare chance to ride a broad, long-term expansion.
MSME credit demand set to rise
Ambit notes that reduced compliance and the higher retrenchment threshold will encourage more MSMEs to expand their operations. With fewer regulatory barriers, these firms are likely to undertake new investments, add capacity and formalise their employment base. That expansion, the report says, will translate directly into higher demand for bank credit across MSMEs.
The report also points out that past relaxations in labour rules have already been linked with higher industrial employment and activity. As firms scale, they typically turn to banks to fund working capital, machinery and wage bills. In this cycle, Ambit expects MSME-linked loan growth to accelerate across the banking system.
Banks and NBFCs best placed to benefit
Ambit identifies a specific set of lenders that stand to gain the most from rising MSME and consumption-driven borrowing. According to the report, these include HDFC Bank, ICICI Bank, SBI, Karur Vysya Bank (KVB), Five Star, SBFC and Chola. These institutions already have strong MSME and small-business lending franchises and are positioned to capture the next wave of demand.
The report further said that the NBFCs that have a deeper reach among small entrepreneurs and other informal units are expected to benefit. As MSMEs formalise and expand, they will reach out to both banks and NBFCs for credit, thereby creating a broad-based lending opportunity, the report added.
Women in manufacturing driving credit growth
The report further highlighted that states with a higher share of women employed in manufacturing witness a faster growth in credit demand. Ambit stated that this is partly due to the working conditions being improved for women and the new rules that allow night shifts accompanied by safety measures.
As more women join or rejoin the workforce, their demand for credit rises, both for personal consumption and micro-enterprise activity.
Ambit finds that credit to women borrowers has grown notably in states where women’s participation in manufacturing is stronger. This linkage, the report says, will strengthen further as labour rules expand opportunities for women and unlock more income-led consumption.
With women’s employment rising and MSMEs preparing to scale, Ambit expects a broader consumption uplift supported by credit. The report says this will create a “leveraged consumption boom,” driven by rising borrowing appetites among small businesses and female borrowers. For lenders, this means deeper loan growth across retail, MSME and unsecured segments.