Small firms fail to recover from note ban, GST impact

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Mumbai, March 12: Even as the economy has largely recovered from the shocks of demonetisation and GST implementation, micro enterprises with borrowings of under ` 10 lakh are yet to fully recover, a report said today.

“Micro, small and medium enterprises ( MSMEs) with exposures from ` 10 lakh to ` 10 crore have recovered to pre- demonetisation levels, ( but) the segment with exposure of less than ` 10 lakh has still not recovered to that extent,” the report by Transunion Cibil and Sidbi said.

It can be noted that the uptick in growth, wherein the GDP expansion accelerated to a 7.2 per cent, had led many watchers to say that the worries of the twin reform measures are behind the economy.

The report reiterated that the situation has improved in all segments except those with borrowings less than ` 50 lakh, where the systemic exposure has not caught up with pre- demonetisation levels.

Further, the overall exposure of the formal financial system to the MSME sector was at ` 11.75 lakh crore of the total credit outstanding of almost ` 100 lakh crore. Only 5 million of the the over 50 million MSMEs have accessed formal finance system for credit.

The note ban and GST have, however, upped the ‘ formalisation’ of the economy which is seen in an increase in ‘ new to credit’ MSMEs at 4 lakh units in the second half of 2017, as against over 2.7 lakh in the year- ago period.

On the critical factor of non- performing assets, the report said impaired assets in MSMEs have been “range bound”, but the proportion of stress increases with the quantum of exposure, which means NPAs among smaller enterprises are lower as compared to the bigger ones. The micro enterprises having borrowings of less than ` 1 crore had an NPA of 8.8 per cent in December 2017 versus 9.2 per cent in the year- ago period.

The report said while there has been a 20 per cent jump in exposure to the under ` 1 crore borrower segment for the year till December 2017 as against an overall 3.2 per cent for the MSME segment as a whole, the exposure to firms borrowing under ` 10 lakh has been a faster 31 per cent. “There is a structural opportunity in the MSME segment, which is both profitable as well as impactful,” Sidbi’s chairman and managing director Mohammed Mustafa told reporters.

While senior officials from the credit information admitted that some of the growth is due to mandatory requirements like priority sector lending, they also pointed out to a larger play by the private sector lenders who are expanding their market share.

Cibil’s managing director and chief executive Satish Pillai said the smaller businesses represent a similar opportunity as the one held by retail lending over a decade ago and are bound to grow.

The state- run development finance institution and the leading credit information company have tied up to launch such reports on the sector on a quarterly basis to understand the progress and suggest policy interventions.

Mr Mustafa said the report points out to lower coverage in states like UP and Bihar.