India’s micro, small and medium exposure business (MSMEx) credit sector is showing early signs of strain from geopolitical uncertainty even as overall portfolio growth remains resilient, according to a June special edition report by CRIF High Mark, which flagged slowing credit momentum and rising stress in vulnerable pockets of the economy.
The report, based on data as of April 2026, suggests that while domestic demand, policy support and diversified lending continue to cushion the broader sector, some manufacturing-linked businesses, micro borrowers and lender categories are beginning to register stress indicators linked to external disruptions.
MSMEx portfolio outstanding stood at about Rs 46 lakh crore in April 2026, up 12.8 per cent year-on-year, supported by targeted credit support measures, improving asset quality and wider participation across sectors and regions, the report said.
However, between December 2025 and April 2026, portfolio growth slowed sharply to 3.1 per cent compared with 9.7 per cent during the same period a year earlier, while active loans contracted 3.5 per cent versus growth of 3.0 per cent last year.
“The sector has demonstrated resilience in the face of geopolitical disruptions,” CRIF High Mark said in the report, while adding that “early stress signals” warrant continued monitoring.
Manufacturing And Trade Show Early Strain
The earliest signs of geopolitical impact appear concentrated in manufacturing and trade, sectors more exposed to supply chain disruptions and external shocks.
Manufacturing and trade accounted for roughly 30-31 per cent each of portfolio outstanding as of April 2026, making them the largest contributors to MSMEx credit exposure, according to the report.
Manufacturing credit growth slowed to 4.3 per cent between December 2025 and March 2026 from 10.4 per cent a year earlier and then contracted 3.1 per cent between March and April 2026. Trade credit also weakened, declining 2.1 per cent over the same period.
Within manufacturing, supply chain-linked subsectors such as shipping and transport, food processing and auto and ancillaries saw some of the sharpest declines.
Portfolio outstanding in food processing fell 17.2 per cent between December 2025 and April 2026, while shipping and transport declined 14.6 per cent and auto and ancillaries fell 14.0 per cent, the report said.
The number of active loans in these sectors also weakened, led by food processing, down 16.7 per cent, and shipping and transport, which declined 13.5 per cent.
CRIF High Mark said these movements may partly reflect cyclical or seasonal factors but merit close observation to assess whether pressures persist.
Slower Lending Momentum Across Financial Institutions
Lending activity moderated across banks and non-bank lenders, another sign that geopolitical uncertainty may be affecting credit supply to the sector.
Public sector banks remained the largest lenders by active loans, with a 42.3 per cent share driven by working capital facilities, while private banks led in portfolio outstanding with a 41.2 per cent share.
Yet credit momentum weakened across lender categories.
Between December 2025 and March 2026, lending by public sector banks edged down 0.2 per cent compared with growth of 3.5 per cent a year earlier, while non-banking financial companies (NBFCs) recorded a 1.6 per cent decline after growing 6.4 per cent during the same period last year.
Private banks still expanded lending, but growth slowed sharply to 5.3 per cent from 16.4 per cent previously.
Although banks and NBFCs showed modest recovery into April, the report said overall growth moderation pointed to potential spillovers from global uncertainty into domestic credit supply.
Micro Borrowers Show Higher Vulnerability
Micro businesses, defined in the report as borrowers with exposure of up to Rs 2 crore, remain the most vulnerable segment despite continuing to dominate by loan volume.
Micro borrowers accounted for nearly 86 per cent of active loans in April 2026 and 37 per cent of portfolio outstanding.
However, the segment recorded sharper deterioration than small and medium borrowers.
Micro portfolio outstanding contracted 3.1 per cent between December 2025 and March 2026, compared with growth of 3.4 per cent in the same period a year earlier, while active loans declined 4.6 per cent after posting growth of 1.5 per cent previously.
Delinquency levels were also higher.
Early-stage delinquency, measured as portfolio-at-risk (PAR) 31-90 days, stood at 2.7 per cent for micro borrowers in April 2026 compared with 1.5 per cent for small businesses and 0.8 per cent for medium businesses.
The report said this highlighted the segment’s greater vulnerability to shocks.
Early Stress Indicators Emerging
Despite broad resilience, CRIF High Mark identified several early indicators of stress emerging across the sector.
Manufacturing delinquency in the PAR 31-90 bucket rose from 1.6 per cent in March 2026 to 1.8 per cent in April, while public sector bank portfolios saw similar early-stage stress rise from 2.7 per cent to 3.0 per cent.
Cash credit facilities also showed increased strain, with PAR 31-90 rising to 1.9 per cent in April from 1.6 per cent a year earlier.
At the same time, working capital utilisation remained elevated but stable, peaking at about 73 per cent for cash credit facilities in March before moderating to roughly 71 per cent in April, suggesting businesses continue to rely on sanctioned credit limits without yet signalling broad distress.
CRIF High Mark said the overall message remained one of resilience supported by domestic demand and policy support, but added that slower portfolio growth, pressure in select manufacturing subsectors and rising early-stage delinquencies were areas lenders and policymakers may need to monitor closely. |
