Structural Interventions

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 maker 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 January 2020 edition

MSME credit continues to have lowest default rate in commercial lending: The default rates across all MSME segments continue to be lower than large corporate NPA rates. The NPA rates for Micro segment MSMEs have remained stable. Within the Micro loans segment <10L ticket size loans have observed a reduction in default rates. However, Small and Medium segment NPA rates continue to increase for last three quarters consecutively.

Public Sector Banks gain market share in MSME lending: Public sector banks (PSBs) had been losing market share continuously over a long period of time. Surge in both NBFCs and private banks market share had been the reason for PSB segment losing its share. However, in the quarter ending Dec ’19, public sector banks have gained market share in MSME lending, for the first time in the past few years. As of Dec’19, PSB market share stood at 49.8% in overall MSME lending book, with highest market share in Micro segment at 59.2%.

Micro segment showed fresh credit disbursals worth ₹92,262 crores in 2019: Lenders disbursed ₹92,262 crores worth of fresh credit towards the Micro segment. While private banks and public sector banks have roughly similar share on fresh credit disbursed in the Micro segment, the growth trends differ significantly when analysed at a granular sub-segment level.

Maharashtra had highest share; Rajasthan clocked fastest growth on fresh credit disbursals in the Micro segment for 2019: Maharashtra, Tamil Nadu and Andhra Pradesh cum Telangana grabbed the largest share of fresh disbursals in the Micro loans segment. While Rajasthan, Delhi and Madhya Pradesh showed fastest growth in fresh disbursals in the Micro segment. However, the trends differ when analysed lender category wise- for instance, micro segment credit landscape in Uttar Pradesh is dominated by Public sector banks; in Tamil Nadu by Private Banks and in Rajasthan by Non-Banking Financial Companies (NBFCs).

Structurally stronger MSMEs are likely to be least impacted in the lockdown: Lockdown impact on any entity will depend on multiple factors; two of the most critical factors being credit leverage and the liquidity position of the entity. Deeper insights can be gained on these two factors at an entity level by studying the CMR and utilization rates of these entities. By simulating these two elements on past events like GST implementation, IL&FS crisis, and rise in NPA rates, we have observed and concluded that entities with low leverage and higher liquidity had lowest default rates during and post these events.

Commercial credit exposure for Dec’19 stood at ₹64.04 lakh crores with YoY expansion at 3.9%: The total on-balance sheet commercial lending exposure in India stands at ₹64.45 lakh crores as of Jan ’20, which was ₹64.04 lakh crores in Dec ’19. Of this, MSME Segment is at ₹17.75 lakh crores credit exposure as of Jan’20. Important to note that MSME segment has observed lowering of credit exposure across most sub-segments of MSME lending in the last few quarters. Large corporates segment is at ₹46.7 lakh crores credit exposure and has observed a YoY expansion of 6.3%.

Utilization rates of working capital limits for MSMEs have been reducing: Reducing utilization levels of working capital limits in MSMEs has been one of the reasons for lowering of credit exposure for the segment. The drop in utilization rates for private banks has accelerated rapidly while that of PSBs has been milder.