MSME Credit Growth May Moderate In FY27 As Deposit Constraints Weigh On Lending

Credit growth in the micro, small and medium enterprise (MSME) segment is expected to moderate further in FY27 following a strong expansion of around 15–16% in FY26, according to a report by Moneycontrol citing a senior finance ministry official.

The slowdown is largely attributed to a rising base effect and constraints in deposit mobilisation, which are expected to influence the pace of lending going forward.

The official noted that banks are increasingly prioritising deposit mobilisation, as credit growth must be supported by corresponding deposit inflows.

This imbalance between credit and deposit growth is already visible, with bank credit expanding by 15.9% in FY26, while deposits grew at a slower pace of about 13.4%, indicating a funding gap that lenders are working to address.

According to the official, MSME lending cannot sustain the high growth rates seen in recent years indefinitely.

After growing strongly at 20.58% in FY24 and 14.1% in FY25, MSME credit is now expected to grow at a more moderate pace in FY27 as the overall lending base has expanded significantly.

The broader credit environment is also expected to normalise. Following robust expansion in FY26 across both corporate and retail lending segments, overall bank credit growth is projected to ease.

However, the official clarified that this moderation should not be interpreted as weakness but rather as a return to sustainable levels after a period of strong expansion.

At the same time, the government continues to support credit flow through schemes such as the Rs 2.55 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) 5.0.

The scheme provides additional working capital support to businesses affected by global disruptions, particularly the West Asia conflict.

ECLGS was originally launched during the Covid pandemic in 2020 to provide collateral-free emergency credit backed by government guarantees.

Across its earlier phases, the scheme facilitated nearly 1.2 crore guarantees worth about Rs 3.68 lakh crore, with MSMEs accounting for the bulk of usage.

The latest version, ECLGS 5.0, marks a revival of the programme and allows eligible MSMEs to access additional working capital loans backed by a 100% government guarantee of up to 20% of their peak working capital utilisation during the January–March 2026 quarter, subject to a cap of Rs 100 crore.