According to the latest data from the Reserve Bank of India (RBI) on sectoral deployment, banks provided a gross credit of Rs 24.67 lakh crore to micro, small, and medium enterprises (MSMEs) under priority sector lending in March this year. This credit deployment witnessed a notable growth of 19.2 percent from Rs 20.69 lakh crore deployed in March 2023.
The total bank credit to MSMEs under priority sector lending in March represented 15 percent of India’s non-food credit, amounting to Rs 164.11 lakh crore during the month.
Breaking it down segment-wise, credit deployment to micro and small enterprises (MSEs) surged by 20.1 percent to Rs 19.76 lakh crore in March 2024 from Rs 16.45 lakh crore in the corresponding period of the previous year. Similarly, credit to medium-sized businesses grew by 15.8 percent to Rs 4.90 lakh crore from Rs 4.23 lakh crore during the same period.
Despite the upward trajectory in bank credit to MSMEs, non-banking financial companies (NBFCs) remain at the forefront of credit support to MSMEs. According to a banking sector performance report in December last year, NBFC loans to MSMEs exceeded three times the loans extended by banks.
Comparing the year-on-year growth in MSME credit by banks and NBFCs, as of March 2022 and March 2023, NBFCs demonstrated a robust growth rate of 21.2 percent and 42.4 percent, respectively, surpassing the growth rates of banks at 12.7 percent and 12.4 percent during the same periods.
As of March 2023, services MSMEs held a dominant 66.6 percent share in NBFC credit to MSMEs compared to 33.4 percent for MSMEs in industries.
However, one of the persistent challenges for MSMEs remains the lack of access to credit. A report by Lighthouse Canton, a global wealth and asset management company, highlighted that the development of digital public infrastructure (DPI) for digital products and services in a country has the potential to address nearly half of the credit gap faced by MSMEs in low and middle-income nations. Furthermore, the adoption of DPI could facilitate credit access for an additional 16-19 million MSMEs in these countries.