Small Businesses are Getting More Credit, While Big Firms are Borrowing Less, Says New RBI Data

Why are banks giving more loans to smaller businesses while turning cautious with large firms? A new trend in the Indian credit market is making headlines, and this time it has the small entrepreneurs at the centre of it.

According to data released by the Reserve Bank of India (RBI) in June 2025, bank credit to micro, small, and medium enterprises (MSMEs) rose 4% between April and May 2025. In contrast, corporate lending during the same period fell by 3.8%, indicating a shift in focus towards smaller firms needing working capital and project finance.

This pattern has gradually formed over the past year, but the latest numbers confirm its direction. The data was sourced from RBI’s scheduled commercial bank statements and verified under the Financial Stability Report (FSR) released in June 2025.

Small Firms See More Loan Approvals Than Before

Banks have been moving more funds towards MSMEs over the last few quarters. This is due to a mix of digital reforms, policy guarantees and rising demand among small manufacturers, service providers, and traders.

One of the strongest signs of this shift comes from the Udyam registration platform, which tracks formalised small businesses across India. As of May 2025, over ₹15.6 lakh crore in bank loans were disbursed to MSMEs listed on this platform. In addition, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has covered loans worth ₹5.2 lakh crore under its guarantee scheme.

Also Read - Top 5 Reasons Why Business Loan Applications Get Rejected in 2025

The data shows that government-backed policies are helping banks take more lending decisions in favour of small firms.

MSME Lending Trends

Indicator	Value
MSME loan growth (April–May 2025)	0.04
Credit via Udyam-registered firms	₹15.6 lakh crore
CGTMSE-guaranteed loans	₹5.2 lakh crore

A major factor behind the rising loan approvals is the introduction of a digital credit scoring model in mid-2024. It evaluates MSME applications based on PAN, Aadhaar, GST records and banking history. This has made processing faster and reduced dependence on collateral.

Large Corporates Face Slower Loan Flow

While MSMEs received more attention, large corporate borrowers saw their credit lines shrink. RBI’s figures reveal a 2.5% drop in corporate lending during the same period. This cutback is not just because of weak demand, but also stricter banking rules and a slowdown in capital-intensive sectors.

Industry watchers say that sectors like infrastructure, steel, and capital goods have slowed their borrowing plans due to high-interest costs and muted investment cycles.

According to the Financial Stability Report, banks have tightened their internal risk filters and are placing greater scrutiny on large exposures.

Corporate Lending Trends

Indicator	Value
Corporate credit growth (April–May 2025)	-2.50%
Sectors most affected	Infrastructure, heavy industry
Lending approach	Stricter due diligence

This has led banks to rebalance their portfolios, with a larger share now being earmarked for retail, agriculture and MSME segments. Some banks, like Punjab National Bank, have announced plans to grow their RAM (Retail, Agriculture, MSME) portfolio to 58% of their total loan book by FY2026.

Digital Tools and Government Guarantees Speed Up MSME Lending

Support measures introduced in the last two years are now showing results. CGTMSE, which offers credit guarantees on collateral-free loans, has scaled operations with AI-based risk filters introduced in early 2025. These tools have brought down approval time by 30%, according to internal estimates shared by the trust.

Read More – MSME Alert: New Govt Loan Schemes For 2025 Growth

In addition, RBI’s revised MSME guidelines now require banks to clear applications up to ₹25 lakh within 14 working days. For loans below ₹10 lakh, collateral is not required, provided the borrower qualifies under defined norms.

These decisions have improved the credit delivery system and given banks the confidence to increase MSME lending.

Policy Backing and Support Systems

Policy / Scheme	Details
CGTMSE Loans Covered	Over 1 crore loans, ₹5.2 lakh crore total
AI-based loan filters	Reduced processing time by 30%
RBI Loan Rules for MSMEs	14-day deadline, no collateral below ₹10L

The Centre’s RAMP (Raising and Accelerating MSME Performance) scheme has also been pushing capacity-building at the state level. In FY 2022–23, ₹269 crore was allocated to help states strengthen MSME facilitation centres, streamline inspections and promote formalisation.

Conclusion

The way banks are giving out loans is changing, and this gives us clues about what banks will focus on in the future. Small businesses are becoming more organised and are using digital tools to manage their operations. As a result, they will need more loans for things like running their daily business (working capital), buying machines or equipment, and expanding their business.

On the other hand, big companies are not borrowing as much right now. This could be because interest rates are still high, and many companies are waiting for better policies or conditions in their specific industries before they decide to invest more.

At the same time, the Reserve Bank of India (RBI) is keeping a close eye on the health of bank balance sheets to make sure they don’t take too many risks. Banks and financial institutions are also changing how they give loans, trying to be more careful and thoughtful in their approach.

Because of these changes, we may see a more even distribution of loans across different sectors in the near future. But for now, the spotlight is clearly on smaller businesses, which are driving the demand for credit and shaping the current lending trends in India.

Other News Pages
RBI to Hold Talks with Industry on US Tariff Impact Before Policy Review	India’s Record Forex Reserves: RBI’s Cushion Against US Trade Tensions	How RBI Is Promoting Rupee Internationalisation	RBI Releases SGB Premature Redemption Schedule (Oct 2025–Mar 2026)
IndusInd Bank & NSIC Sign MoU to Boost MSME Credit Access	RBI Survey Shows Loan Demand Outlook Improving from Q2 FY26	India to Launch Climate Finance Taxonomy to Attract Green Capital	SBI Cards Still Struggling to Regain Market Share
Experts: RBI Likely to Hold Short-Term Lending Rate	RBI to Stop ₹500 Notes in ATMs? Govt Clarifies	Personal Loan Defaults Rising in AP & Telangana	Indian Railways Sanctions ₹200 Crore Loan for Surat MMTH Project
₹48 Lakh Returned to Victims of Instant Loan App Scam	Festive Season 2025: Banks Offering Lowest Personal Loan Rates	Banking Services in Gujarat Likely to Be Hit on July 9	RBI Announces Two-Day Reverse Repo Auction from July 9
Kotak Bank’s Affluent Program on Hold After RBI Ban	Indian Economy Resilient Despite Global Uncertainty & Tariff Risks	RBI’s Financial Inclusion Index Rises to 67.0 in March 2025	HDFC Bank Cuts Merger-Linked Debt; Loan Growth Slows to 5.4%
AP Govt to Guarantee ₹1000 Crore Loan for 7 Airports	Pension Fund Managers Seek Relaxation in Bond Investment Rules	SBI Credit Card Update: No Free Cover, Revised Settlement from July 15	Why Young Borrowers in Tier-3 & Rural India Are Defaulting
Big Businesses Prefer Market Funding Over Bank Loans	MSME Loans Up 4%, Corporate Lending Contracts	FM Sitharaman: NBFCs Must Ensure Fair Loan Recovery	FM: NBFCs’ Gross Loan Advances Doubled in 4 Years

.