MSME Pulse

The need of MSME PULSE

Information is key to decision making and if it is available at the right time, meaningful interventions can be made. 
Since structured data in respect of MSME is not available during the year, no early signs are available to help taking decisions to those who matter and make policies, be it bankers or policy make₹ A comprehensive document based on close monitoring and tracking of MSME segment providing insights to policy makers, therefore, becomes imperative.
Till date, no such report based on a on a study done on over 5 Million active MSMEs having access to formal credit, with live credit facilities in the Indian banking system, is available.   
While there is some data available with respect to Banks, there is no data in respect to NBFCs.  Further, such data does not tell as to how many new entrepreneurs have accessed credit and what is the situation across different states. The launch of MSME Pulse, a quarterly comprehensive report, is an attempt to fill this gap and aims to provide the credit industry with trends and insights for making information oriented business decisions.

Key Findings of MSME PULSE 4th edition (October – December 2018)

  • Total credit exposure in India stands at ₹ 105.5 lakh crores: Total credit exposure stood at ₹ 105.5 Lakh Crores as of Sep’18. MSME Credit accounts for ₹ 24.7 Lakh Crores including credit to MSME entities and credit to individuals for business purposes. Large and MID Corporates account for ₹ 44.4 Lakh Crores. Other than ₹ 36.5 Lakh Crores of Agri & Retail Credit segment, the MSME Credit exposure is at 35.6% of the overall exposure to businesses.

  • Credit growth recovery on a firm footing: In the previous edition of MSME Pulse, we had expected the overall credit growth to be sustainable given the growth in the Large Segment. The year-on-year (YOY) Commercial Credit growth continues to rise clocking 13.5% YOY growth in the Sep’18 quarter. Overcoming the low growth in Sep’17, the Large (greater than ₹ 100 Crores exposure) segment has shown three consecutive quarters of high credit growth signaling sustainability in this segment. Micro (exposure less than ₹ 1 Crore) and SME (₹ 1 Crore - ₹ 25 Crores) segments constitute ₹ 14.3 Lakh Crores credit exposure (24.3% of commercial credit exposure) with YOY growth of 22.3% and 18.4% respectively. In comparison it is 7.2% for MID (₹ 25 Crores - ₹ 100 Crores) and 12.0% for Large (greater than ₹ 100 Crores exposure) from Sep’17 - Sep’18.

  • MSME Credit Costs: The Credit cost study investigates the MSME portfolio performance from a profit & loss perspective on a quarterly basis. The study has been done from Sep’16 - Jun’18. The study shows that new NPA Rate of the MSME segment has been between 1% - 1.5% per quarter and recovery rates have been between 0.4% - 0.8%. The industry annual credit cost in the 4 quarters from Jun’17 - Jun’18 is 1.8%. Given that the net interest margin (NIM) in this segment range from 4% - 7% depending on the type of loan and risk of the borrower, the Return on Asset (ROA) of lending in the segment can be estimated to be between 2% - 5%, which is a healthy rate of return.

  • Loan Stacking Study: Banks need to be prudent with borrowers taking multiple loans within 60 days. The loan stacking study shows that default rates in borrowers taking multiple loans from multiple lenders within a period of 60 days have increased from 2.5% - 4.4% from Sep’15 - Sep’18. This has been due to a slight deterioration in acquisition quality measured by the proportion of fresh acquisitions in the low risk CMR-1 to CMR-3 bands compared to other bands. The study also shows that NBFC borrowers are more prone to exhibiting Loan Stacking behavior with 23% of borrowers sanctioned by NBFCs exhibit Loan Stacking behavior and NBFCs contributing to about 45% of sanctions under Loan Stacking.

  • Vintage Analysis: NPA vintage study defines how the quality of acquisitions have moved in the MSME segment. All the fresh acquisition in a period is considered and default rates within the portfolio is observed in the subsequent quarte₹ The vintage curve for fresh acquisitions done from Mar’14 - Jun’18 is analyzed. It is observed that the MSME default rates have remained stable till 4th quarter in the range of 0.5%-0.8% and default rates between 1.5%- 2.5% by Q8. Private Bank’s acquisitions are stable with default rates of 0.1% - 0.3% by Q4 and 0.5% - 0.8 % by Q8. The default rates of Public Sector Banks are higher at 0.7% - 1.3% by Q4 and 1.9 - 3.0% by Q8. The default rates of NBFCs are higher than Private Banks but lower than Public Sector Banks at 0.4-1.6% by Q4 and 1.5-3.0% by Q8.

  • NBFC Share in MSME lending has been increasing: The share of NBFCs in new credit sanctions to the MSME segment has increased from 13% in (Sep’15) to 17% in (Sep’18). Number of NBFCs having over ₹ 100 Crores MSME portfolio has increased in the same period from 51 to 77, while total number of such financial institutions stands at 128. Sectors, which are the most dependent on NBFC funding, include Transport & Logistics which have 35% dependency on NBFC finance, Real Estate, Education, Healthcare, Mining & Construction. NBFCs are most active in the top 10 locations (top locations basis portfolio size) where their contribution of fresh loan sanction to the MSME segment is 22%.