The report focuses on businesses with total exposure of up to ₹5 crore, indicating sustained lending activity despite global uncertainties, buoyed by domestic economic stability and supportive policies.
Sole proprietors lead the portfolio and borrower demographics
Sole proprietors remained pivotal to the ecosystem, representing almost 80% of the total portfolio outstanding. Pure sole proprietors alone made up 62.5% of active loans and 73% of total borrowers, emphasizing their crucial role in driving credit growth and borrower increases.
Originations rise 13.3%, driven by younger and female borrowers
Loan originations increased by 13.3% year-on-year from December 2024 to December 2025. Within this category, originations to sole proprietors surged at a rate of 15%.
Participation trends indicate a gradual diversification of the borrower demographics. Women comprised 23.9% of originations in this segment, while borrowers under 35 years continued to contribute to incremental demand. The average loan size for sole proprietors remained relatively stable at ₹3.34 lakh.
NBFCs broaden their reach to 28% market share
Non-banking financial companies (NBFCs) increased their stake in the overall small business loan portfolio to 28% as of December 2025, up from 26.8% the previous year.
Their influence is particularly notable in the sole proprietor segment, where they represented 41.6% of the outstanding portfolio (excluding borrowers operating via enterprises), signifying their importance in catering to smaller-ticket and collateral-backed loans.
Asset quality remains stable despite growth
Despite the rise in credit, asset quality indicators held steady. Loans overdue by 31–90 days (PAR) were at 3.5%, while those overdue by 91–180 days stood at 1.3%. Both figures remained largely unchanged from September to December 2025, indicating manageable risk levels.
Credit extends beyond metro areas; smaller cities gain traction
Geographically, the top 10 states made up about 72% of the total portfolio outstanding. Uttar Pradesh, Telangana, and West Bengal were the key contributors to incremental growth.
Simultaneously, lending activity continued to expand beyond major urban centres. Smaller cities (BT100) now account for nearly 40% of sole proprietor credit, reflecting improved credit accessibility in semi-urban and rural areas.
New-to-credit borrowers increase; risk profiles enhance
Formalisation trends accelerated, with new-to-credit (NTC) borrowers representing 23.3% of sole proprietor originations and 11% of enterprise originations in the past year.
Concurrently, borrower risk profiles showed improvement. The share of very low- and low-risk borrowers rose from 64.8% to 69.1% for enterprises, and from 50.3% to 55.8% for sole proprietors from December 2023 to December 2025.
Gujarat experiences 11.8% growth with improved asset quality
On a state level, Gujarat’s small business portfolio expanded from ₹3.5 lakh crore to ₹3.9 lakh crore over the past year, demonstrating an 11.8% growth.
Active loans increased by 9.8% to 42.4 lakh, while asset quality surpassed the national average. PAR for 91–180 days improved to 0.9%, compared to the national figure of 1.3%. Enterprise-driven originations in the state also grew by 16.7% year-on-year as of the third quarter of FY26.
Aspirational districts witness accelerated credit expansion
Credit growth in aspirational districts outpaced the overall market, rising 18.4% year-on-year from ₹2.7 lakh crore to ₹3.2 lakh crore. Active loans in these areas increased to 72.2 lakh.
Asset quality also improved in these districts, with PAR for 91–180 days reducing from 1.8% to 1.4%, narrowing the gap with national averages.
