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 5th edition (January– March 2019)

  • Total  credit  exposure  in  India  stood  at  ₹111.1  Lakh  crores: Total credit exposure stood at₹111.1  Lakh  Crores  as  of  Dec’18.  The  Mid  and  Large  Corporate segments hold the largest share of 43% and exposure   of   ₹47.5   Lakh   Crores.   Consumer   Lending   (Retail,  Agriculture  and  Priority  Sector  Lending)  is  the  second biggest segment with a share of 35% and exposure of ₹38.4 Lakh Crores. The MSME segment (business lending   to   both   corporate   entities   and   individuals)   stands third with a share of 23% of the aggregate pie.
  • Credit  growth  resumes  in  earnest: The Year-On-Year (YOY)   commercial   credit   growth   continues   to   rise   clocking 14.4% in the Dec’18 quarter. The Large (greater than ₹100  Crores  exposure)  segment  has  shown  very  high credit growth of 14.9% signaling revival trends. The Micro (exposure less than ₹1 Crore) and SME (₹1 Crore - ₹25 Crores)   segments   constitute   ₹14.8   Lakh   Crores   credit   exposure (23.7% of commercial credit exposure) scaling YOY growth of 19.2% and 15.9% respectively. In comparison it is 5.0% for Mid (₹25 Crores - ₹100 Crores) from Dec’17 to Dec’18.
  • Banking  Sector  on  the  way  to  recovery:  After  a  long  period of stress, the banking sector seems to be on the course   to   recovery   as   the   NPA   rates   have   started   showing a gradual decline. The NPA rate reached its peak in  the  period  between  Mar’18  to  Jun’18  for  the  Mid  and  Large  segments.  We  witnessed  a  reduction  in  the  NPA  rate for the Large segment from 20% in Jun’18 to 19% in Dec’18.  Similarly,  the  NPA  rate  for  the  Mid  segment  declined from 18% in Jun’18 to 16.5% in Dec’18.
  • MSME credit growth on a firm footing: Aggregate MSME lending  (both  entities  and  individuals)  has  expanded  rapidly over the last five years. Total balance outstanding has increased from ₹10.4  Lakh Crores in Dec’13 to₹25.2 Lakh Crores in Dec’18 – a compounded annual growth rate (CAGR) of 19.3%. The growth in aggregate MSME Lending in over the last five years has been powered by a 15.7% CAGR of lending to entities and a 26.1% increase in business lending to individuals.
  • Improvement  in  lending  intensity:  Aggregate  MSME  lending  as  a  proportion  of  the  GDP  has  increased by around 400 basis points (bps) to reach 13.6% in Dec’18 from Dec’13. The rapid increase in the MSME lending intensity has been driven by a 130 bps and 260 bps improvement in lending to entities and individuals respectively. It is noteworthy that MSME lending intensity – as measured by MSME loans outstanding divided by MSME GVA (Gross Value Added) has moved up from 32.2% in Dec’13 to 47.6% in Dec’18 – a landmark increase of 15.4 percentage points (pps). This growth has been driven by an increase of 5.8 pps in lending to entities and 9.7 pps in lending to individuals.
  • PSBs Share in MSME lending has been reducing: The market share of PSBs (Public Sector Banks) in  MSME  lending  (both  entities  and  individual  segment)  has  reduced  from  58%  to  39%  in  5  years  period from Dec’13 to Dec’18. PSBs continue to be the single biggest lender to MSMEs but the gap between the PSBs and the Private (PVT) segment has narrowed from a significant 37 pps in Dec’13 to just about 7 pps in Dec’18. However, going forward, we would expect that the PSBs would be able to claw back some of the share losses as more PSBs come out of the PCA framework. Their market share  growth  will  also  be  aided  by  the  continued  funding  constraints  being  experienced  by  the  NBFC segment.
  • New MSME Credit seekers have accelerated in 2018: The ongoing trend of increasing formalization as well as financial inclusion implies that the number of new MSMEs has been consistently increasing across geographies. NTC borrowers entering the formal credit sector have accelerated from ~2.7  Lakhs  in  6  months  in  H1-16  to  ~3  Lakhs  in  H1-17  and  further  on  to  ~5.2  Lakhs  in  H1-18.  The  Mudra  scheme  is  noteworthy  for  its  financial  inclusion  impact  as  NTC  MSMEs  in  <₹10  Lakhs  segment  have  increased  by  74%  between  H1-17  to  H1-18,  from  2.3  Lakhs  to  4.1  Lakhs.  Providing  access to credit for NTC MSME entities is largely enabled by PSBs which have about 78% contribution in <₹10 Lakhs segment.