Private Banks Lead in Small Business Lending in India
New Delhi: In the competitive landscape of enterprise lending, private banks continue to assert their dominance, with public sector banks (PSBs) trailing behind. A recent report by the Small Industries Development Bank of India (SIDBI) and CRIF High Mark delineates a notable decline in the market share of PSBs over the past two years.
Although private banks remain the principal lenders, non-banking financial companies (NBFCs) are increasingly encroaching upon this space, particularly among sole proprietors, where they now capture over 41 percent of the lending market.
In this context, “small business” is defined as enterprises with an aggregate credit exposure not exceeding Rs 5 crore from formal lending sources.
As of September 2025, private banks retain their status as the leading lenders, albeit with minor fluctuations in their share. Conversely, public sector banks have seen a decline from 39.3 percent in September 2023 to 37.8 percent by the same month in 2025.
This downturn in PSB market share has largely benefitted NBFCs, signifying a gradual transformation within the lending environment.
The total credit exposure to small enterprises soared to Rs 46 lakh crore as of September 2025, reflecting a substantial year-on-year growth of 16.2 percent and a quarter-on-quarter increase of 1.5 percent. Additionally, active loan accounts surged by 11.8 percent year-on-year, totaling 7.3 crore accounts.
The report credits this growth momentum to extensive policy initiatives aimed at the MSME (Micro, Small, and Medium Enterprises) sector, coupled with the implementation of several government-endorsed credit schemes that have been pivotal in fostering credit expansion.
However, there is a noted moderation in growth compared to the preceding quarter, which saw a year-on-year increase of 19.3 percent. This deceleration may be influenced by more cautious underwriting practices among lenders as well as seasonal fluctuations.
Despite this slowing pace, the continued growth in outstanding credit relative to loan volumes indicates an upward trend in average ticket sizes.
Within the lending product mix, working capital loans dominate, comprising approximately 57 percent of the total portfolio, while term loans also play a critical role in capital expenditure financing.
For sole proprietors, loans against property (LAP) represent the most significant segment, followed by business loans and commercial vehicle loans.
Furthermore, unsecured lending has demonstrated vigorous growth, achieving a remarkable 31 percent year-on-year increase, notwithstanding apprehensions regarding stress in certain segments.
Source link: M.economictimes.com.
