Lending Norms Tightening As Early Signs Of Stress Emerge In Msmes

(MENAFN- KNN India) New Delhi, Sep 29 (KNN) Banks and non-banking finance companies (NBFCs) are strengthening their underwriting models as early signs of stress surface in the micro, small and medium enterprise (MSME) sector.

Rising delinquencies, especially in small-ticket loans, are pushing lenders to adopt more data-driven and nuanced credit assessment frameworks.

Kotak Mahindra Bank sees rural India as a major growth driver over the next five to seven years.“We're expanding our distribution and leveraging data analytics to improve credit assessment and risk management,” said Manish Kothari, group president & head – commercial banking.

Lenders are increasingly relying on alternative data such as GST filings, cash-flow patterns, verified transactions, utility payments, digital footprints, and supply chain records to evaluate borrower credibility. Multiple unsecured loans also serve as a red flag during assessments.

Credifin, for instance, has adjusted its lending policies in response to market realities.“We have extended the tenure of e-rickshaw loans to 36 months after observing income compression due to saturation in certain geographies,” said Shalya Gupta, MD & CEO.

DBS Bank India has also waived prepayment and foreclosure charges for registered MSMEs, enabling businesses to repay early and channel funds into expansion or technology upgrades.

Meanwhile, discussions are ongoing to update credit bureau data on a daily basis, compared to the current fortnightly schedule mandated by the Reserve Bank of India (RBI).

In the microfinance segment, lenders are becoming more cautious with new-to-credit customers and limiting exposure to highly-leveraged borrowers.

A Motilal Oswal report noted that on-time collection is emerging as a key performance metric, with microfinance institutions (MFIs) also diversifying into unsecured business loans, MSME credit, and gold loans to manage risk better.

According to the RBI's June Financial Stability Report, outstanding MSME credit grew 14.1% year-on-year in FY25, with its share in total bank credit hitting a record 17.7%.

(KNN Bureau)

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