Banks Get the Nudge, MSMEs Get the Boost: Inside India’s New Credit Playbook

By Aggrima --
Friday, 12 Dec, 2025

India’s credit landscape is getting a quiet but powerful makeover and at the centre of this transformation are the country’s micro, small and medium enterprises. Over the past month, the Ministry of Finance has nudged public sector banks (PSBs) to expand their MSME loan books, tighten asset quality, and fast-track digital lending. For millions of small businesses battling high input costs and ambitious growth plans, this shift could be a turning point.

A Sector in the Spotlight

During the half-yearly review of PSBs for FY 2025–26, officials flagged the need for stronger credit support to MSMEs. The message was clear: banks must lend more, lend smarter, and lend faster.

Behind this lies a familiar challenge. India’s MSMEs have long faced a persistent credit shortfall driven by collateral requirements, lengthy loan processing times, and inconsistencies in financial documentation. As demand for credit rises across manufacturing hubs, service clusters, and local trading networks, the urgency to close this gap has never been higher. One of the most significant changes underway is the push toward AI-driven underwriting and digital verification. PSBs are being encouraged to move beyond traditional metrics and tap into real-time data streams such as GST filings, Udyam registration details, bank statements, and invoices recorded on TReDS.

For businesses that maintain clean books and digital records, this could be game-changing. Turnaround times may drop sharply, eligibility could improve, and first-time borrowers, long stuck in paperwork loops, might finally find easier access to credit. The integration of platforms like the Account Aggregator framework is also expected to remove friction and improve transparency, giving banks a clearer picture of enterprise cash flows.

What This Means for MSMEs

While the government’s direction sets the stage, the real advantage will go to enterprises that prepare themselves. That means tightening financial documentation, improving compliance, and embracing digital tools that create a clear audit trail.

Government-backed credit guarantee schemes such as CGTMSE or export guarantees can also help businesses secure loans without collateral, offering a cushion for both borrower and lender.With PSBs under fresh instructions to scale up MSME lending, it may be worthwhile for businesses to compare offers across banks. Competition could open doors to better interest rates and more flexible terms.

This renewed attention marks a promising moment for India’s MSME ecosystem. As banks step up and technology reshapes credit assessment, the playing field is gradually becoming more inclusive. The enterprises that stay digitally agile and financially organised will be the first to benefit.In a sector often defined by constraints, this lending push could signal a new chapter one where growth is not limited by access to credit but powered by it.

Banks Get the Nudge, MSMEs Get the Boost: Inside India’s New Credit Playbook. India’s credit landscape is getting a quiet but powerful makeover and at the centre of this transformation are the country’s micro, small and medium enterprises. Over the past month, the Ministry of Finance has nudged public sector banks (PSBs) to expand their MSME loan books, tighten asset quality, and fast-track digital lending. For millions of small businesses battling high input costs and ambitious growth plans, this shift could be a turning point.

<h3>A Sector in the Spotlight</h3>

During the half-yearly review of PSBs for FY 2025–26, officials flagged the need for stronger credit support to MSMEs. The message was clear: banks must lend more, lend smarter, and lend faster.

Behind this lies a familiar challenge. India’s MSMEs have long faced a persistent credit shortfall driven by collateral requirements, lengthy loan processing times, and inconsistencies in financial documentation. As demand for credit rises across manufacturing hubs, service clusters, and local trading networks, the urgency to close this gap has never been higher. One of the most significant changes underway is the push toward AI-driven underwriting and digital verification. PSBs are being encouraged to move beyond traditional metrics and tap into real-time data streams such as GST filings, Udyam registration details, bank statements, and invoices recorded on TReDS.

For businesses that maintain clean books and digital records, this could be game-changing. Turnaround times may drop sharply, eligibility could improve, and first-time borrowers, long stuck in paperwork loops, might finally find easier access to credit. The integration of platforms like the Account Aggregator framework is also expected to remove friction and improve transparency, giving banks a clearer picture of enterprise cash flows.

<h3>What This Means for MSMEs</h3>

While the government’s direction sets the stage, the real advantage will go to enterprises that prepare themselves. That means tightening financial documentation, improving compliance, and embracing digital tools that create a clear audit trail.

Government-backed credit guarantee schemes such as CGTMSE or export guarantees can also help businesses secure loans without collateral, offering a cushion for both borrower and lender.With PSBs under fresh instructions to scale up MSME lending, it may be worthwhile for businesses to compare offers across banks. Competition could open doors to better interest rates and more flexible terms.

This renewed attention marks a promising moment for India’s MSME ecosystem. As banks step up and technology reshapes credit assessment, the playing field is gradually becoming more inclusive. The enterprises that stay digitally agile and financially organised will be the first to benefit.In a sector often defined by constraints, this lending push could signal a new chapter one where growth is not limited by access to credit but powered by it.