MSME Minister Directs Banks To Improve Credit Access For Small Businesses In Puducherry

Key Takeaways

• Union MSME Minister Jitan Ram Manjhi asked banks to expand institutional credit access for MSMEs during his July 8-9 Puducherry visit, chairing a review with SLBC and SIDBI officials. 
   
• This follows his June 29-30 Ladakh visit, where bankers and entrepreneurs raised similar credit access concerns.

What happened in Puducherry on July 8 and 9?

Union Minister for MSME Jitan Ram Manjhi visited Puducherry on July 8 and 9, 2026. He reviewed how flagship MSME Ministry schemes are being rolled out across the union territory. Manjhi directed banks to widen institutional credit access for micro, small and medium enterprises. 

He chaired a review meeting attended by officials from the Development and Facilitation Office, Khadi and Village Industries Commission, Coir Board, National Small Industries Corporation, SIDBI, and the State Level Bankers’ Committee. MSME associations and other stakeholders also participated.

The minister asked every stakeholder to ensure effective implementation of government schemes covering technology, credit, skill development and market access. An official statement said discussions centred on improving awareness and uptake of these schemes among Puducherry’s small business owners. 

This marks Manjhi’s second regional MSME review in under two weeks. He held a similar high-level meeting in Leh, Ladakh, on June 29 and 30, 2026, where bankers and entrepreneurs flagged credit access as a persistent concern.

Why Institutional Credit Access still Falls Short for MSMEs?

India’s MSME credit story shows a wide gap between demand and formal supply. According to the MSME Pulse Report by TransUnion CIBIL and SIDBI, only 41% of India's 8.7 crore registered MSMEs have ever accessed formal credit. 

India’s commercial credit market has grown into a ₹65.8 lakh crore ecosystem, yet most registered MSMEs have not benefited from it. A separate Deloitte report estimated the MSME credit gap at around ₹25 lakh crore as of March 2025, with only 14% of MSMEs having formal financing access.

For ordinary business owners in tier-2 and tier-3 towns like Puducherry, this gap translates into dependence on informal lenders who charge steep interest rates. Manjhi’s push for banks to act comes against this backdrop. The Expert Committee of the Reserve Bank of India (RBI) on MSMEs, headed by Mr. U.K. Sinha, estimated that the credit gap was between ₹20 lakh crore and ₹25 lakh crore five years ago.

Positive Signals Amid the Gap

The picture is not entirely bleak. Bank credit to MSMEs as on 31 March, 2024 was recorded at ₹27.25 lakh crore, indicating that MSMEs were increasingly integrating into the formal financial system. 

In the last two financial years, the growth in bank credit to MSMEs was recorded at 12.39% and 20.58%. The RBI has also mandated that banks skip collateral requirements for loans up to ₹10 lakh for micro and small enterprises, a rule meant to ease first-time borrowing.
 

How will this Affect Small Business Owners across India?

For Puducherry’s registered MSMEs, Manjhi’s directive signals renewed pressure on local SLBC members to loosen lending norms. In the short term, this could mean faster loan processing at public sector bank branches already covered under priority sector lending targets. As per RBI’s rules for priority sector lending, banks need to allocate 7.5% of their net bank credit for micro enterprises, which is something that the authorities wish the banks to adhere to.

In the long run, successful implementation can help more first-time entrepreneurs use banking channels instead of informal moneylenders. On the contrary, the TransUnion CIBIL-SIDBI report highlighted one disturbing pattern as well. While 52% of new to credit enterprises accounted for annual loan originations in FY23, this number decreased to 42% in FY26. This means ministerial directives alone may not automatically translate into wider first-time access unless banks change underwriting behaviour.

What are Experts and Officials Saying about the Solution?

Mr Swaminathan J is a Deputy Governor who observed that MSMEs should gear up towards financial inclusion. In his speech, he also mentioned the speech he delivered at the Federation of Telangana Chambers of Commerce and Industry in November 2024. He noted that maintaining accurate financial records such as income statements, balance sheets and cash flow statements is essential for building credibility with lenders. He added that adopting digital payment systems creates a transaction trail that helps lenders assess a firm's actual financial health.

Industry analysts covering the TransUnion CIBIL-SIDBI report point to a structural fix already underway. Public sector banks continue to dominate lending below the ₹10 lakh range, while non-banking financial companies have expanded strongly in the ₹10 lakh to ₹2 crore segment, gaining six percentage points of market share since March 2023. 

This division of labour, with NBFCs handling secured, longer-tenure products, is seen as one practical route to closing the missing-middle gap. Separately, financial advisory firm IIFL notes that cash-flow-based lending, which evaluates real-time GST filings and bank statements instead of collateral, is emerging as the preferred underwriting model for banks by 2026.

Manjhi himself, in an earlier interaction with SMEStreet, had pointed to the Emergency Credit Line Guarantee Scheme, which delivered over ₹3 lakh crore in financial assistance during the pandemic, as proof that targeted credit guarantee mechanisms work when implemented at scale. He has consistently pushed collateral-free lending under the Credit Guarantee Scheme for Micro and Small Enterprises as the template for future expansion.

LoansJagat’s coverage of SBI's instant MSME loan scheme cites CRISIL’s SME Outlook 2025 Report, which found that informal borrowing still accounts for nearly 30% of total MSME debt in India. This figure sits close to the credit gap numbers cited earlier in this article and reinforces why Manjhi’s push matters at the branch level. Nearly a third of small business debt still runs through moneylenders and informal channels rather than banks, exactly the segment institutional credit access is meant to absorb. 

Conclusion 

Manjhi’s Puducherry visit follows a pattern of regional reviews the ministry has conducted through June and July 2026, including Ladakh on June 29-30 and a West Asia crisis impact assessment in New Delhi on June 2, 2026. Each of these meetings has surfaced the same core issue: credit access remains uneven across states and union territories despite national policy frameworks.

The Development and Facilitation Office and SLBC members in Puducherry are now expected to submit implementation updates following the minister’ directive. Whether this translates into measurable credit growth will depend on how quickly local bank branches adjust lending practices for micro and small enterprises. For now, the ministry's approach signals continued reliance on regional review meetings as the primary mechanism to push banks toward the government's institutional credit goals.

Frequently Asked Questions

Will bank mergers reduce how much credit reaches small businesses?
Bank consolidation itself has not shown a direct link to reduced MSME credit in current data. What matters more is branch-level lending behaviour. Public sector banks hold dominance in terms of lending below ₹10 lakh, whereas NBFCs have increased their market share by six percent in the range of ₹10 lakh to ₹2 crore from March 2023. This spread across lender types actually cushions small businesses if any single bank scales back. Manjhi's push for SLBC action in Puducherry aims to keep public banks accountable regardless of consolidation trends.

What are the biggest credit pain points for MSME owners and exporters in India?
Four issues dominate. First, only 41% of India’s 8.7 crore MSMEs have ever accessed formal credit. Second, lenders demand collateral many small firms lack, despite the RBI’s ₹10 lakh collateral-free rule. Third, informal or cash-based records make it hard for banks to verify income. Fourth, the overall gap stands near ₹25 lakh crore, pushing many exporters toward costlier informal lenders.