INDIA: The National Urban Cooperative Finance and Development Corporation (NUCFDC) and TransUnion CIBIL jointly unveiled the first edition of the Sahakaar Trends report at the 2025 Credit Conference. According to the report, as of March 2025, portfolio balances for Urban Cooperative Banks (UCBs) stood at INR 2.9 lakh crore, recording a 6% YoY growth and 1.8x growth over the last 5 years (since March 2020). Key product segments saw double-digit growth in portfolio balances, driven by increased demand and wider market reach.

The report notes that the sector is poised for its next phase of growth through a tech-led resurgence, with headroom to advance digital transformation and modernize operations. A strategic focus on technology will unlock stronger growth and enhance competitiveness in a fast-changing financial landscape for UCBs.

The first edition of the Sahakaar Trends report offers a comprehensive view of UCB performance, benchmarking them against peer institutions and laying out data-driven recommendations to help them compete smarter, grow sustainably, and serve more effectively. The report underscores the growing relevance of India’s 1,472 UCBs as critical enablers of the country’s next phase of financial growth, particularly in expanding credit access across small towns and semi-urban India.

With the banking sector projected to grow at 11.5% annually through 2030, UCBs are seen as well-aligned with India’s inclusive development goals. Their deep roots in local economies, community connections, and grassroots presence make them uniquely placed to extend formal credit to India’s next billion borrowers. Serving close to 9 crore Indians, UCBs are not just financial institutions; they are local anchors of trust. As India eyes a $5 trillion economy, UCBs are positioned to rise responsibly and digitally, powering micro-entrepreneurs, self-employed youth, women-led SHGs, informal workers, and first-time homebuyers along the way.

Speaking about the report launch, Prabhat Chaturvedi, CEO, NUCFDC, said, “UCBs have long been pillars of trust and grassroots accessibility. Today, backed by data-driven insights, digital tools, and institutional support, they are poised to lead a new era of inclusive financial growth. Sahakaar Trends is not a report but a roadmap for how UCBs can evolve into agile, future-ready institutions that blend legacy strength with the promise of speed, scale, and digital sophistication.”

“The timing couldn’t be more fitting. The latest Financial Stability Report by the RBI highlights how UCBs are emerging stronger, with credit growth in primary UCBs accelerating to 7.4% year-on-year as of March 2025, with both Scheduled (SUCBs) and Non-Scheduled UCBs (NSUCBs) contributing to this momentum in lending activity. The sector’s capital position has also improved significantly, with the overall Capital to Risk-Weighted Assets Ratio (CRAR) rising to 18.0%. Asset quality has shown a positive shift, with gross NPAs declining to 6.1% and the net NPA ratio falling to 0.6%. This data reaffirms our belief that the cooperative banking sector is entering a new chapter marked by resilience, reform, and renewed confidence”.

The report calls for regulatory focus and faster digital adoption to help modernize these community-rooted institutions for a future-ready credit ecosystem. By leveraging digital tools, strengthening underwriting frameworks, and improving risk management, UCBs have the opportunity to expand market share while significantly enhancing operational efficiency and customer experience.

While acknowledging the legacy burden of outdated systems, Sahakaar Trends outlines a clear path forward. Initiatives like the Sahakar Credit Engine, Sahakar Paathshaala, and portfolio risk dashboards shall equip UCBs to automate loan processing, monitor credit in real-time, and offer Aadhaar-enabled, app-based lending solutions. Coupled with targeted staff training, these interventions are designed to help UCBs deliver faster, smarter, and more inclusive banking.

The report highlights a sharp evolution in UCBs’ credit portfolio over the last five years. Commercial loans continue to dominate, accounting for 28% of total balances. Housing loans have maintained strong momentum with a 19% CAGR and now contribute 14% to the overall portfolio. Personal loans have grown at an 18% CAGR, making up 6% of balances in the same period. Gold loans posted a standout 52% CAGR, despite comprising just 4% of the portfolio. Auto loans and loans against bank deposits also showed rapid growth, clocking 33% and 23% CAGR, respectively, each accounting for 2% of the portfolio, signalling rising demand for collateral-backed credit in urban markets. Retail business loans have emerged as a key MSME growth driver for UCBs, growing at a robust 24% CAGR and accounting for 12% of their overall portfolio. This surge is driven by rising credit demand from micro-entrepreneurs and informal enterprises across urban and semi-urban markets.

Commercial loans have grown modestly at a 3% CAGR over the past five years. Notably, 37% of commercial loan seekers at UCBs are new-to-credit (NTC) borrowers. Thus, it signals UCBs’ role in expanding credit access to first-time entrepreneurs and small businesses. The report highlights that UCBs are showing stronger credit discipline in this commercial loan segment.

Among borrowers with exposure below INR 1 crore, delinquency rates have dropped from 3.5% in March 2020 to 1.4% by March 2025, outperforming PSU banks, which stood at 3.3% in the same period. A similar trend is visible in the INR 1–10 crore exposure bracket, where UCBs improved from 5% to 3.3%, nearly closing the gap with PSUs, which brought down delinquencies from 3.5% to 1.4%. On the demand side, the outlook remains strong. Over the past five years, credit demand for commercial loans through UCBs has grown faster than for PSUs, with a larger share of applicants falling in the low-risk category.

UCBs are witnessing a notable rise in housing loan demand that reflects growing trust among aspiring homeowners, especially in semi-urban and underserved regions. Between March 2020 and March 2025, housing loan enquiries at UCBs grew 2.8x, peaking at an indexed value of 299 in FY24 and stabilizing at 280, compared to just 1.6x growth for HFCs (indexed at 163). Additionally, UCBs have demonstrated strength in catering to above-prime borrowers, with an average home loan ticket size of INR 25.2 lakh. The share of subprime enquiries dropped from 12% in 2020 to just 9% in 2025.

UCBs are also attracting a more diverse borrower mix, with 20% of housing loan enquiries now coming from new-to-credit customers. Younger borrowers (aged 35 and below) account for 28% of home loan originations, which offers an opportunity to tap the segment with tailored digital offerings and first-time homebuyer solutions. Gender inclusion stands out as a key differentiator, with 71% of UCBs’ housing loan customers being women, compared to 57% for HFCs. Geographically, UCBs hold a slightly higher presence in both metro markets (42%) and rural areas (22%), outperforming HFCs across both segments.

Despite global macro headwinds and rising competition, UCBs have delivered consistent credit growth across business lines. Their deep local presence, trust-based engagement, and high conversion rates, especially in personal loans, where they achieve a 48% conversion, provide a strong foundation for sustained and inclusive expansion.

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Speaking on the findings of this edition of the MSME Pulse, Sivasubramanian Ramann, Chairman and Managing Director, of SIDBI, said: “Lending to the MSME sector continued in H1:FY2024, despite the conclusion of the Emergency Credit Line Guarantee Scheme (ECLGS) scheme, indicating underlying growth momentum of the sector. Technology is aiding in lending to the MSME sector. Facilitating wider adoption of online loan applications, financial management tools, and digital payment platforms along with the utilization of robust analytics, can enhance the lending to the MSMEs and help fortify India’s businesses for sustained growth. SIDBI is working on the above lines and is leveraging technology, utilizing the Digital Public Infrastructure of the Government of India, to augment credit flow to the sector with faster turnaround.”

In the July-September 2023 quarter, the total value of new MSME credit originations was INR 243K Crores, with Small segment enterprises accounting for the largest share at 42%. Sustained credit supply has enabled substantial portfolio growth of 11% amounting to INR 28.2 Lakh Crores across 80 Lakh MSME entities­ in the quarter under review.

During this period, overall balance-level delinquencies, measured as 90 days past due to 720 days past due and those reported as ‘sub-standard’, have improved and stood at 2.3%.

“MSME portfolio performance improved across all borrower segments as delinquency rates declined. In the quarter ending September 2023, we saw the lowest delinquency rate in the last two years. With promising economic growth prospects reflected through strong demand, stable portfolio growth, and improved credit performance, now is a good time for lenders to expand their MSME lending book. The sectoral study covered in this MSME Pulse report showcases the unique nuances of each sector within the MSME segment. The wide spectrum of occupations covered by MSMEs has the potential of catalyzing social development through economic empowerment,” added Rajesh Kumar, Managing Director and CEO, of TransUnion CIBIL.

The MSME portfolio excludes ~ ₹ 2.5 lakh crores of default cases beyond 720 days past due (DPD) /loss /doubtful category. The delinquency rate definition excludes legacy accounts with DPD beyond 720 days or reported as loss/doubtful

By building an online lending journey with analytical and objective credit risk assessment tools like FIT Rank, lenders can achieve improved operational efficiencies and reduce turnaround times significantly.

Rapid credit expansion across semi-urban and rural geographies

In the July-September 2023 quarter, 46% of MSME originations were in semi-urban and rural regions. Almost half (49%) of the Micro2 segment’s originations came from the semi-urban and rural areas, whereas 39% of originations in the Small segment came from these regions.

• Micro Exposure up to INR 1 Cr; Small: Exposure between INR 1 Cr and INR 10 crs; Medium Exposure between INR 10 crs and INR 50 crs
• Medium Risk: CMR 4-6 (Share of Borrowers)
• The risk percentage is based on the origination data where the risk score is available.

One of the key factors contributing to this expansion is the improvement in credit profiles of MSMEs – the share of high-risk MSMEs (CMR 7-10) has reduced to 13% in the July-September 2023 quarter from 15% during the same period the previous year. Medium risk (CMR 4-6) continues to have a high share with 55% of MSMEs in this risk segment. 

Analysis across the states shows that originations from the large states with Maharashtra, Gujarat, Delhi, Tamil Nadu, and Uttar Pradesh continue to be high, accounting for 47.2% of the origination value. There is also a higher growth rate especially in Uttar Pradesh and Tamil Nadu in the quarter ending Sep 2023.

These states also account for approximately 42% of New-to-Credit (NTC) originations in the Micro MSME segment, further driving the credit inclusion initiative. Within the Micro MSME segment, Maharashtra has a high share in the low-ticket-sized Very Small segment and Micro1 segment, while Gujarat has a high share in the Micro 2 segment.

The manufacturing sector accounts for the highest credit originations

As per the latest information released by the Ministry of Statistics and Programme Implementation in December 2023, output in MSME manufacturing accounted for 40.83% of output in all India manufacturing during the year 2021-22. This is also reflected in TransUnion CIBIL Commercial Bureau data where the Manufacturing sector accounts for 37% of value originated and has the largest share, followed by the ‘Trades’ sector with a 28% share. Professional Services and Other Sectors together account for the remaining 35% share (of the data considered for this report).

Textiles is the highest contributing sub-sector within Manufacturing sector originations. The majority of originations within sub-sectors are led by the Medium segment (10 Crores to 50 Crores) and catered for by private banks. The geographical distribution of originations across sub-sectors is concentrated in three top-contributing states: Gujarat, Tamil Nadu, and Maharashtra. While the manufacturing sector accounts for 37% of origination value it has only 25% share of the volumes originated. However, the manufacturing sector experienced an increased share in originations by value within the Micro segment compared to the previous year. The ‘Trade’ sector accounts for the highest share of origination volumes with 39% of loans originating; 36% of these disbursements are from NTC MSMEs.

As the borrower profile and credit behavior of each sector is different, these borrowers’ credit performance is also differently influenced by intrinsic sectoral impact. Leveraging data and analytics to understand borrower behavior is essential to continue sustainable growth across sectors.  The core advantage of sector-wide growth is the vast geographical expanse it covers, spreading through areas where urbanization and multiple employment opportunities and development are essential.

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