The Rise of Private Lenders: Small Business Financing Gets a Makeover

WOWLY- Your AI Agent Apr 02, 2026 1,050 Views

Private banks now lead small business lending in India, while public sector banks have lost market share over the past two years, according to a joint report by SIDBI and CRIF High Mark. NBFCs are also gaining ground, reflecting a notable shift in the lending landscape for small enterprises.

Private banks continue to dominate the small business lending segment in India, with their market share holding strong despite some volatility. Public sector banks, once major players, have seen their share decline from 39.3% in September 2023 to 37.8% by September 2025. This trend marks a significant shift in the sector, with the gap being filled primarily by non-banking financial companies (NBFCs), especially among sole proprietors where NBFCs now command over 41% of the lending share.

Key Highlights:

Rising Aggregate Credit Exposure: Total credit exposure to small businesses reached Rs 46 lakh crore as of September 2025, reflecting robust 16.2% year-on-year growth. Active loan accounts also surged by 11.8% to 7.3 crore, indicating strong demand and expanded access.
Product Mix Insights: Working capital loans remain the dominant product, making up about 57% of the outstanding portfolio. Term loans continue to support capital expenditure needs, while loans against property are the largest component for sole proprietors.
Growth Drivers: The sustained momentum is attributed to comprehensive policy initiatives for the MSME sector, including government-backed credit schemes that have played a pivotal role in supporting credit expansion. However, the pace of growth has moderated compared to previous quarters, possibly due to more cautious underwriting and seasonal variations.
Unsecured Lending Momentum: Unsecured loans have also recorded strong growth, rising 31% year-on-year, despite concerns about stress in certain segments. This highlights the evolving risk appetite and product offerings among lenders.
Policy and Market Dynamics: The gradual shift in market share reflects changing lender strategies, with private banks and NBFCs adapting more quickly to evolving market conditions and borrower needs. PSBs, while still significant, face increased competition and are adjusting their approaches to regain ground.

The lending landscape for small businesses is undergoing a transformation, with private banks and NBFCs leading the charge and public sector banks adapting to new realities. The report underscores the importance of continued policy support and innovation in credit delivery to sustain this growth momentum.

Source: Small Industries Development Bank of India (SIDBI) and CRIF High Mark.

Stay Ahead – Explore Now! Quick-Commerce Quick-Step: Zepto Discloses ED Summons Ahead of IPO