What is the current trend in MSME lending by non-bank lenders in India?

Non-bank lenders in India, such as Bajaj Finance, IIFL Finance, and Ugro Capital, are becoming more cautious in their MSME lending due to rising defaults and economic headwinds.

How have major NBFCs responded to the stress in the MSME segment?

Major NBFCs have slowed the growth of their collateral-free MSME lending, with Bajaj Finance scaling back its MSME business and IIFL Finance shifting towards more secured lending.

What are the key factors contributing to the stress in the MSME sector?

Experts attribute the stress to over-leveraging by small businesses, as well as the impact of US tariffs on Indian exports, which has affected cash flows for many export-oriented MSMEs.

Home / Business and Economy / NBFCs Tighten MSME Lending as Defaults Rise Across Sectors

NBFCs Tighten MSME Lending as Defaults Rise Across Sectors

18 Nov

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Summary

Non-bank lenders scale back collateral-free MSME lending
Bajaj Finance, IIFL Finance see spike in bad loans in MSME segment
Ugro Capital adopts "prudent approach" amid macro headwinds

NBFCs Tighten MSME Lending as Defaults Rise Across Sectors

As of November 2025, non-bank lenders in India are turning more cautious in their approach to lending to micro, small, and medium enterprises (MSMEs). This shift comes as defaults have risen following a period of aggressive credit expansion to borrowers with weaker credit profiles.

Major non-bank finance companies (NBFCs) like Bajaj Finance, IIFL Finance, Shriram Finance, and Ugro Capital have all slowed the growth of their collateral-free MSME lending in the September quarter. Bajaj Finance, for instance, has scaled back its MSME business after its gross bad loan ratio in the segment hit 2.47%, up from 1.65% a year earlier. The company now expects its MSME book to grow only 11-12% in the current fiscal year, down sharply from its earlier projection of nearly 20%.

Similarly, IIFL Finance saw its MSME gross non-performing assets rise to 5.93% in the September quarter, up from 3.10% a year ago. The company has attributed this to a "strategic recalibration towards low-risk secured lending and pullback from unsecured lending."