GST cut drives MSME loan demand

CHENNAI/MUMBAI: The GST rate cut is driving MSMEs to seek additional funding from banks for expansion. After the GST rejig, banks have seen a spike in enquiries for advances from the MSMEs. It comes amid lenders having moved closer to their annual targets for the MSME segment in the first half of the current fiscal.

For instance, state-owned Indian Overseas Bank has recorded its MSME portfolio touching Rs 48,000 crore as of Sept 30, 2025, out of the total target of Rs 51,000 crore for the full financial year, a 16.7% increase YoY.




Indian Overseas Bank's MD & CEO Ajay Kumar Srivastava said govt has taken several initiatives to accelerate MSME growth, such as their classification and turnover. Noting that the bank is likely to reach Rs 55,000 crore in its MSME portfolio this fiscal, he said, GST will be one of the major factors. "We are focusing on the manufacturing (in the MSME) sector," he added.

To target the high-growth MSME segment, the country's largest lender SBI has launched digital MSME loans. These loans offer MSMEs end-to-end sanctions in 45 minutes. The bank has processed nearly 2.3 lakh such accounts with credit limits of Rs 74,434 crore up to Aug 2025.

Indian Bank MD & CEO Binod Kumar said, there has been good traction from the MSMEs, with the YoY growth tripled from 5-6% to around 17% (FY25 vs FY26). "We are seeing demand mainly from the services sector, including hospitality. It is for their expansion plans or setting up new hotels both during pre- and post-GST 2.0. Major demand is also coming from the ancillary units. We will exceed our target for MSMEs this year," he said.

PNB has launched a slew of products, including comprehensive financing up to Rs 100 crore, digital MSME loans enable paperless lending up to Rs 25 lakh. The bank has also introduced a fully digital MSME loan of up to Rs 5 crore backed by CGTMSE guarantee and concessional rates.

Bankers said that another reason for the thrust on MSME loans is that the new regulations on expected credit loss make it less capital intensive for banks to lend to MSMEs.