NewKerala.com

Private Banks Lead Small Business Lending as NBFCs Gain Ground: SIDBI Report

Private banks continue to be the primary lenders to India's small businesses, though public sector banks have seen their market share decline over the past two years. Non-banking financial companies are steadily gaining ground, particularly among sole proprietors where they now command over 41% of lending. Aggregate credit exposure to small businesses reached ₹46 lakh crore as of September 2025, registering a robust 16.2% year-on-year growth. The report attributes this momentum to comprehensive policy initiatives for the MSME sector, including government-backed credit schemes, though growth has moderated slightly from the previous quarter.

Key Points: Private vs Public Banks in Small Business Lending: 2025 Trends

  • Private banks lead enterprise lending
  • PSB share falls to 37.8%
  • NBFCs gain with 41% sole proprietor share
  • Unsecured loans grow 31% YoY
2 min read

Private banks lead small business lending; PSBs lost share in last 2 years: Report

A SIDBI report reveals private banks dominate small business lending, while PSBs lose share to NBFCs. Credit exposure hits ₹46 lakh crore with 16.2% YoY growth.

"As of Sep'25, private banks remain the primary lenders to enterprises, though their share shows minor volatility. - SIDBI & CRIF High Mark Report"

New Delhi, December 25

Private banks continue to dominate enterprise lending to small businesses in India, closely followed by public sector banks, though the latter have seen a decline in their market share over the past two years, according to a report by Small Industries Development Bank of India and CRIF High Mark, India's first full-service credit information bureau.

The report noted that while private banks remain the primary lenders to enterprises, non-banking financial companies (NBFCs) are steadily gaining share, particularly among sole proprietors, where they now command over 41 per cent of the lending share.

In the study, "small business" is defined as enterprises with an aggregated credit exposure of not more than Rs 5 crore from the formal lending system.

It stated, "As of Sep'25, private banks remain the primary lenders to enterprises, though their share shows minor volatility. Public sector banks follow closely, but their share declined from 39.3 per cent in Sep'23 to 37.8 per cent in Sep'25."

The report highlighted that the reduced share of PSBs has largely been absorbed by NBFCs, reflecting a gradual shift in the lending landscape.

Aggregate credit exposure to small businesses reached Rs 46 lakh crore as of September 2025, registering a robust 16.2 per cent year-on-year growth. On a quarter-on-quarter basis, growth stood at 1.5 per cent. Active loan accounts also rose strongly, increasing 11.8 per cent year-on-year to 7.3 crore accounts.

The report attributed this sustained momentum to comprehensive policy initiatives for the MSME (Micro, Small, and Medium Enterprises) sector, including the implementation of several government-backed credit schemes, which have played a pivotal role in supporting credit expansion.

However, the pace of growth has moderated compared to the previous quarter, when year-on-year growth stood at 19.3 per cent. This moderation may reflect more cautious underwriting by lenders as well as seasonal variations, the report said.

Despite this, the faster growth in credit outstanding compared to loan volumes indicates steady expansion in average ticket sizes.

In terms of product mix, working capital loans dominate enterprise lending, accounting for around 57 per cent of the portfolio outstanding, while term loans continue to support capital expenditure needs. For sole proprietors, loans against property (LAP) form the largest component, followed by business loans and commercial vehicle loans.

The report also shared that the unsecured lending also recorded strong momentum, with unsecured loans growing 31 per cent year-on-year despite concerns around stress in certain segments.

- ANI

Share this article:

Reader Comments

P
Priya S
As a small business owner myself, I'm not surprised. I switched from a PSB to a private bank last year. The loan process was online, faster, and the customer service was actually helpful. PSBs need to modernize quickly if they want to compete. 🏦
R
Rohit P
Good to see overall credit growth is strong at 16%! Government schemes like the Credit Guarantee Scheme are clearly helping. MSMEs are the engine of our economy. More power to them! 💪
S
Sarah B
The rise of NBFCs to 41% share for sole proprietors is fascinating. It shows a gap in the market that traditional banks weren't filling. They're often more flexible with eligibility, which is crucial for new entrepreneurs.
V
Vikram M
We must be cautious about the 31% growth in unsecured loans. Yes, it helps businesses get quick funds, but we've seen stress in this segment before. Responsible lending is key, otherwise, we'll have another NPA problem.
K
Karthik V
The report says average ticket sizes are going up. That's a positive sign! It means existing businesses are expanding and taking larger loans for growth, not just survival. This is real economic development.
M
Michael C

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Minimum 50 characters 0/50