Credit demand from micro, small, and medium enterprises (MSMEs) is expected to drive India’s projected credit growth of around Rs 26 trillion in FY26, up by about 14.3% year-on-year, as per a joint report by ICRA Limited and ASSOCHAM. In FY27, credit growth is anticipated to moderate to 11.3-12%, amounting to Rs 23.5 to Rs 25 trillion of incremental growth, following a high base in the previous year rather than a weakening of demand.
The report highlights a significant structural gap in access to finance that continues to limit the MSME sector, projecting overall bank credit expansion to remain flat, with MSMEs and retail sectors leading incremental growth. ASSOCHAM Secretary General Saurabh Sanyal emphasized the critical importance of enhancing finance access for MSMEs to sustain inclusive growth and ensure widespread benefits of economic expansion.
ICRA Ltd Executive Director K. Ravichandran observed that while the financial system is now structurally stronger and more resilient, evolving credit dynamics necessitate a departure from traditional lending approaches. The report anticipates buoyant credit demand supported by improving economic activity, stronger balance sheets across sectors, and ongoing formalization efforts.
MSMEs are identified as key growth drivers as supply chains deepen and smaller enterprises integrate further into formal production systems, fostering economic expansion in urban and semi-urban markets. The report also notes that formalization initiatives, revised classification thresholds, and policy backing have enhanced credit visibility, enabling lenders to better evaluate borrower profiles and expand credit access.
Despite improvements, the report underscores a persistent structural credit gap due to varied risk profiles, limited collateral, and information opacity, hindering the timely and adequate flow of credit, especially for smaller enterprises and those operating outside fully formalized frameworks.
