Archive · 18 Nov 2025
NBFCs Curb MSME Lending Amid Rising Defaults
Big loan companies in India, called NBFCs, are lending less to small businesses because too many of these businesses are not paying back their loans.
These NBFCs are now being more careful about who they lend to and are asking for more security for their loans.
This is happening because many small businesses borrowed too much money and are now having trouble paying it back.
Non-bank lenders (NBFCs) are reducing collateral-free loans to micro, small, and medium enterprises (MSMEs) due to increasing defaults.
Bajaj Finance, IIFL Finance, Shriram Finance, and Ugro Capital have slowed MSME loan growth and tightened lending criteria.
Bajaj Finance's MSME loan growth is expected to slow to 11-12% in FY26, down from its earlier projection of nearly 20%.
The primary cause of stress is over-leveraging of small MSMEs, particularly those with weak credit profiles.
NBFCs are shifting to a 'risk-first' stance, focusing on secured loans and closer scrutiny of borrowers.
- Who
- Non-bank lenders (NBFCs) like Bajaj Finance, IIFL Finance, Shriram Finance, and Ugro Capital
- What
- Reducing collateral-free loans to micro, small, and medium enterprises (MSMEs) due to rising defaults
- When
- In the September quarter and ongoing
- Where
- India
- Why
- To protect asset quality and manage risks associated with over-leveraged MSMEs with weak credit profiles
Cautious Lending Stance
MSME Defaults
Risk Mitigation
Cautious Lending Stance
NBFCs are shifting to a 'risk-first' stance, focusing on secured loans and closer scrutiny of borrowers.
MSME Defaults
Rising defaults among MSMEs with weak credit profiles are forcing NBFCs to adopt a more cautious approach.
Over-leveraging
Cautious Lending Stance
Many small MSMEs borrowed from multiple NBFCs during a lending spree, leading to over-leveraging.
MSME Defaults
The primary cause of stress in the MSME sector is over-leveraging, particularly among businesses with weak credit profiles.
- Bajaj Finance MSME Loan Growth (FY26)
- Expected to slow to 11-12%
- Bajaj Finance Gross Bad Loan Ratio (MSMEs)
- Hit 2.47% in Q2 FY26
- IIFL Finance Gross Bad Loans (MSMEs)
- Rise to 5.93% in Q2 FY26
- Ugro Capital Gross NPA (as of Sept 2025)
- 2.4%
- Shriram Finance Gross NPA (as of Sept 2025)
- 4.57%
