Manufacturing MSME credit growth slows to three-year low: Report

Mumbai: Credit growth to small businesses in the manufacturing sector - marked out as one of the most important drivers of broader economic progress - expanded at the slowest pace in the last three years, a report said on Friday.

Suggesting a 're-look' into the loan acquisition strategy, the report said only 41 per cent of the country's registered MSMEs have accessed formal credit till now, and added that lenders may not be doing enough as the share of new-to-credit (NTC) customers is falling.

The report by TransUnion Cibil and Sidbi pointed out that outstanding balances to manufacturing micro, small and medium enterprises grew at 13 per cent per annum over the last three years to Rs 15.3 lakh crore, despite the government having made growth in this employment intensive area as a key focus.


The credit information company said that advances to the 'trades' segment grew at 16 per cent during the same period, while the professional and other services sector was the fastest growing at 17 per cent during the three years ending FY26.

The country's lenders preferred the trades category despite a slower decline in asset quality improvement in the sector as compared to manufacturing, the report said.

Advances overdue for over 90 days declined by 0.55 per cent in the manufacturing sector during the three years, as compared to a relatively lower decline of 0.41 per cent for the trades segment, it said.

The report further said that over half of the manufacturing credit to MSMEs is concentrated in the textiles, engineering and food processing sectors as of March 2026.

Maharashtra and Gujarat in western India and Tamil Nadu to the South are the busiest states when it comes to lending to the manufacturing sector, it said.

On the NTC side, it said the share of such customers in originations has declined to 42 per cent in FY26 from 52 per cent in FY23, indicating a cautious stance by lenders.

"Bridging this gap will require collective effort from all stakeholders to make credit more accessible, relevant, and responsive to the needs of emerging businesses," TC's managing director and chief executive, Bhavesh Jain, said.

States with a low share in NTC originations and a low share in credit penetration present opportunities for credit expansion for enterprises, the report said, adding that NTC borrowers show moderate-to-good initial credit profiles.

On the portfolio quality front, the performance remains stable at 1.8 per cent of the outstanding loans being unpaid for over 90 days, the report said, adding that there are pockets of risk emerging.

Delinquencies in the entity-wise unsecured business loans have shot up to 7.2 per cent, up 2.74 per cent over the last three years, it said, adding that delinquency in the Rs 2-10 lakh loan segment for MSMEs has also risen to 5.6 per cent.