 "MSME credit growth improves as impact of note ban, GST subsides: Report")
The credit growth in the MSME sector is improving with the overall exposure reaching the highest level in over a year and impacts of demonetisation and the GST also seem to be subsiding, says a study.
The overall credit exposure has shown the highest growth in last five quarters at Rs 54.20 trillion as of March 31, 2018, with micro, small and medium enterprises (MSMEs) segment constituting Rs 12.6 trillion (23 per cent) of the commercial credit outstanding, the 'MSME Pulse Quarterly Report by TransUnion CIBIL-SIDBI showed on Wednesday.
After the lows of September 2017, even large credit exposure of over Rs 1 billion has shown two consecutive quarters of recovery in credit growth. Microcredit of less than Rs 10 million and SME of Rs 10-250 million grew by 22 per cent and 13 per cent, respectively, as of March-end this year, said the report.
Large corporates contributing to nearly 67 per cent of commercial credit outstanding exhibit a delinquency of 18 per cent, higher than 16 per cent as on March 31, 2017.
The report said the quarterly additions to non-performing assets (NPAs) by the sector showed the steepest rise during the second and third quarter of 2017-18.
"Data unambiguously shows that the MSME segment has clearly left behind the short-term impact of GST and demonetisation. They are firmly back on a growth path with the segment having exposure below Rs 250 million growing at 25 per cent. High growth in new credit shows the positive impact of GST," SIDBI chairman and managing director Mohammad Mustafa said.
The rise in bad loans has moderated in the sector but it is too early to conclude that the problem is close to bottoming out, as also the future NPAs of these MSMEs may be driven by Rs 110 billion standard credit exposure but belongs to those companies who have at least one or more credit exposures as NPA by other bank or credit institution, it added.
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Apart from this, there is a system-wide exposure of Rs 1.2 trillion of those entities with CIBIL MSME Rank (CMR) of 7 to 10 -- associated with high risk.
"These high-risk exposures are expected to add Rs 160 billion in NPAs by March 2019. However, strong credit demand in this segment among other things driven by the formalisation of MSME segment is likely to keep the overall NPA rate in this segment in check," the report said.
RBI's dispensation to MSME which includes recognising NPA in 180 days as opposed to the previous approach of tagging NPA in 90 days past due will bring relief to Rs 150 billion of exposure, Mustafa said.
The report also revealed that new private banks were most successful in tapping the MSME opportunity with banks increasing their lending from 27.5 per cent in March 2018 to 30.3 per cent as on March 2018. NBFCs increased their share to 10.9 per cent from 9.1 per cent earlier.
On the other hand, the share of lending by public sector banks has fallen from 57 per cent to 50.4 per cent in the same period.
However, new private banks and NBFCs lending to these high-risk borrowers are largely offering asset-backed loans, while PSU banks are offering plain working capital and term loans even to this segment, it added.
As of March 2018, based on credit utilisation exposure, it appears that most MSMEs including the smallest ones have recovered from the impact of demonetisation and GST. The new-to-credit (NTC) borrowers continued to accelerate with 500,000 NTCs estimated in the first half of 2017-18 compared to 400,000 in the second half of 2016-17.
"In effect going forward, it may be expected that annually, at least a million NTC MSME borrowers would be seeking formal credit. Recent NTC portfolio study suggests that 60 per cent first time borrowers sustain or increase their credit, in the two-year period following their first formal loan," as per MSME Pulse Quarterly Report.
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