MSME credit to NTB bounces back, ETB remains buoyant
Emergency Credit Line Guarantee Scheme is a major factor in driving this significant surge in credit disbursement to MSMEs:
The latest edition of the ` SIDBI - TransUnion CIBIL MSME Pulse Report’ brings out the fact that unlocks in June 2021 have led to a sharp bounce back in credit demand (measured as credit enquiries) by MSMEs, which was dampened by the 2nd wave after a strong 4th quarter of FY 2021.
In FY 2021, loans worth `9.5 trillion have been disbursed to MSMEs, against `6.8 trillion disbursed in the preceding year. Government interventions like Emergency Credit Line Guarantee Scheme (ECLGS) under the AtmaNirbhar Bharat program are major factors in driving this significant surge in credit disbursement to MSMEs, according to the Report. The total on-balance sheet commercial lending exposure in India stood at `74.36 trillion in March 2021, with yoy growth rate of 0.6%. The MSME segment’s credit exposure stood at `20.21 trillion as of March 2021, showing yoy growth rate of 6.6%. This credit growth is observed across all the sub segments of MSME lending.
An analysis of the report shows a significant surge in credit demand post unlocks after the 1st and 2nd wave of the pandemic. Followed by the initial drop in commercial credit enquires by 76% during the 1st wave, they recovered rapidly backed by ECLGS intervention and have since sustained close to pre-covid levels. Commercial credit enquiries in March 2021 were at 32% over pre-covid levels; this strong momentum was impacted by the 2nd wave, but June 2021 again showed a sharp recovery to pre-covid levels.
RISK APPETITE BACK
Risk appetite across lenders too is back to pre-pandemic levels. Approval rates have increased across all lenders with the backing of 100% credit guarantee of ECLGS. The originations share by CMR show that share of high-risk segment CMR 7-10 dropped and low-risk segment CMR 1-3 increased in the initial period of the pandemic. But now, the originations distribution by CMR is similar to that of the pre-covid levels.
Lenders are relatively more open to lend to MSMEs which missed payments in the last 12 months. Some 29% of the borrowers from MSME segment have missed more than one payment in last three months. The same proportion for January 2020 to March 2020 was at 21%, indicating increasing acceptance of lenders to fund MSMEs with missed payments.
40% GROWTH IN DISBURSALS
The scheme has played a major role in achieving 40% yoy growth in disbursements to the sector, thereby reviving the business sentiments among the MSMEs. The key highlight which signals the revival is credit to new-to-bank (NTB) which has returned back to pre-covid levels, while credit to existing-to-bank (ETB) remains buoyant.
DOWNGRADES JUMPED IN Q4
MSME credit performance movement, measured through CIBIL MSME Rank (CMR) downgrades, has been broadly in control till December 2020 with polic y-le vel inter ventions. With the lifting of moratorium and clarification in guidelines for delinquency recognition, the downgrades have jumped in the quarter of March 2021 - leading to a rise in the pool of mid-risk MSMEs.
NPA RATES STABLE
NPA rates for MSME portfolios are stable due to high credit growth.With the strong inflow of credit in the MSME sector, and various support measures from government and regulator, the NPA rates for MSMEs are controlled at 12.5% for March 2021 compared to 12.6% for March 2020. However, the NPA rates for March 2021 are higher than December 2020 (12%) coupled with credit downgrades. The credit needs of the first-time borrowers belonging to the MSMEs are catered to by the Credit Guarantee Scheme for Subordinate Debt (CGSSD) for MSMEs.
USE OF DATA ANALYTICS
The significant surge in MSME credit
demand post unlocks reasserts India’s growth story. The Government’s progrowth initiatives like extending ECLGS support to the tune of `4.5 trillion, regulatory reforms like restructuring of loans and the swift implementation of these initiatives by banks and credit institutions using data analytics have paved the way for fortifying MSMEs.
CGTMSE APPROVES ` 2.72 TN
According to Narayan Rane, Union Minister for MSMEs, an amount of `2.73 trillion have been sanctioned under the scheme as on 2. July 2021, of which an amount of `2.14 trillion has been disbursed. The Government has announced that MSME dues should be cleared by the government agencies and CPSEs within 45 days. Since May 2020 and up to 26 July 2021, pending payments of `558.63 billion have been made to MSMEs. As informed by the Department of Financial Services, guarantees have been issued for loan granted to around 10.9 million MSMEs as on 2 July 2021. Up to 30 June 2021, CGTMSE has approved 53, 86,739 guarantees cumulatively for an amount of `2.72 trillion. During the first quarter of 2021-22 CGTMSE has reported that guarantee approvals with respect to banks and NBFCs are `66.93 billion and `66.03 billion respectively during the first quarter of 2021-22 as against `60.41 billion and `29.34 billion respectively during first quarter of 2020-21.