Demonetisation slowed MSME credit
Credit to micro, small and medium enterprises (MSME) sector is showing healthy signs of recovery from the impact of demonetisation and goods and services tax (GST), said a study on the Reserve Bank of India (RBI) website. MSME credit saw healthy growth in recent quarters and has recovered since the lows of late 2017 to reach the mid-2015 level, it said.
The latest RBI data shows credit to micro and small enterprises in June decelerated by 2.4 per cent from March 2018. MSME credit saw a year-onyear growth of 0.7 per cent in June 2018 against June 2017.
“Demonetisation led to a further decline in the already decelerating credit growth of the MSME sector while GST implementation does not seem to have had a significant impact on overall credit to MSMEs.” However, MSME exports appear to be affected more by GST implementation vis-à-vis demonetisation.
M N Nair, CIBIL chairman, said that the demand for credit in is double digit for loans up to ~100 million. The credit demand is expected to pick up with GST system stabilising, helping units to provide data.
Credit growth fell significantly and turned negative during November 2016-February 2017. Therefore, it seems that demonetisation accentuated the slowdown in credit growth, particularly to industrial sector, said the report. However, the growth in credit to the MSME sector recovered after February 2017 to reach an average of 8.5 per cent during January-May 2018. While MSME exports showed only mild weakness post demonetisation period, they decelerated sharply during April and August 2017 (GST implementation period) with only a temporary recovery during the post-GST implementation period.
Industry credit, as a whole, saw a year-on-year growth of 0.9 per cent in June 2018, against a contraction of 1.1 per cent in June 2017, according to RBI data. The senior public sector bank executives said banks have moved to cash-flow based assessment of credit. Under the GST regime, it is beneficial to look at invoices for credit decision. While around 90 per cent of MSME credit comes from banks, non-banking finance companies (NBFC) are rapidly increasingly their share in the market.