New Delhi, Nov. 18 -- Non-bank lenders are turning cautious on lending to small enterprises, as defaults rise following a lending spree to borrowers with weak credit profiles.

Bajaj Finance, IIFL Finance, Shriram Finance and Ugro Capital are among lenders that have slowed the growth of collateral-free lending to micro, small and medium enterprises (MSME) in the September quarter. A clear shift is emerging: more secured loans, closer scrutiny of borrowers, and more cash to cover potential loan losses.

Bajaj Finance has scaled back the MSME business after gross bad loan ratio in the segment hit 2.47% in the September quarter, against 1.83% the preceding quarter and 1.65% a year earlier. India's largest non-bank finance company (NBFC) now ...