MSME Loan Risk: Over-Leveraged Borrowers

Mumbai, Dec 8 (PTI) Lenders are staring at a "sharp concentration risk" in the micro, small and medium enterprises portfolios, with over half of the outstanding to borrowers having three or more loans, a credit information company said on Monday.

Crif High Mark said 22 per cent of the MSME outstandings by value are to entities having 3-5 loans, while those with six loans constitute another 30 per cent to the books as of September 2025.

"Borrowers with 6-10 and 10+ loans together account for nearly 30 per cent of exposure, though they represent only 1.6 per cent of borrowers, underscoring sharp concentration risk," the company said in a report.

"In effect, a small segment of highly leveraged borrowers dominates overall credit exposure, driving both portfolio growth and risk concentration," it added.

The Crif report also said there is a "silver lining" on the MSME portfolios front, saying 83.6 per cent of the borrowers by numbers have a single loan and a significant number of them have borrowed in the last one year.

In the past few months, concerns over risks in the MSME portfolios have been voiced in some quarters, even as banks continue to expand in the segment on the back of aspects like higher formalisation in the economy which creates the demand and greater use of digital tools in lending process which helps on the supply.

One of the problems afflicting the microfinance industry has also been over-leverage of borrowers and the industry has been forced to come together and put guardrails that include limiting the number of loans to a single borrower at four.

The Crif report said the state-run lenders are losing market share in the segment, pointing out that their share in the micro segment has come down to 36.3 per cent from 39.8 per cent two years ago, while the private sector lenders continue to lead in the small and medium segments with 46-48 per cent market share.

Non-bank lenders have shown consistent growth across all borrower segments, increasing their share in micro to 20.1 per cent from 17.per cent, in small to 13.9 per cent from 10.3 per cent, and in medium to 15.7 per cent from 12.7 per cent.

From a geographic perspective, Maharashtra and Delhi reported a negative growth on portfolio outstanding on-quarter or sequential basis, leading the top-10 states' contribution to the overall outstandings to decline by 0.3 per cent in September.

The overall portfolio outstanding growth slowed down to over 17 per cent in the September quarter to Rs 43.3 lakh crore, while the number of active loans grew a modest 5.6 per cent, which represents higher ticket sizes.

Portfolio quality has remained stable to improving, the report said, pointing out that loans over due for 91-180 days stood at 1.4 per cent as of September, down from 1.7 per cent in June and 1.5 per cent in year-ago period.

"Key Portfolio At Risk metrics remain contained, and the share of low-risk borrowers has improved across all segments -- suggesting that growth is being underwritten with stronger risk frameworks," Crif's Chairman Sachin Seth said.