Indian banks turn cautious on MSME lending as stress signals emerge: Report

Indian banks are turning cautious on MSME lending as stress signals emerge, with loan growth slowing to 12.7% YoY in April 2026 from 18-20% earlier and active loan growth plummeting to just 2.5% YoY. Delinquencies are rising, with 31-90 day past dues climbing to 1.8% and 90+ day delinquencies to 7.8%, while public sector banks face sharper stress (31-90 day delinquencies at 3% vs 2.7%) compared to largely stable private banks. The West Asia conflict is disrupting supply chains and pushing up input costs, particularly hurting MSMEs in textiles, chemicals, and auto components, though government-backed schemes like CGTMSE and ECLGS are expected to provide a buffer.