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.

MSME Pulse- Edition XI– Highlights

  • Commercial credit enquiries have bounced back and are maintaining pre-COVID-19 levels, indicating a resurgence in credit demand: The year-on-year (YoY) growth in commercial credit enquiries dropped 60% in Apr’20. However with the government’s Atmanirbhar Bharat Initiative on Emergency Credit Line Guarantee Scheme (ECLGS), commercial credit enquiries growth surged 58% YoY in June’20 and  and stabilised at 13% YoY growth for Dec’20, which is similar to the growth rate of pre-COVID-19 levels.
  • ECLGS has boosted MSME credit supply, however the majority of originations are towards the ETB (existing-to-bank) segment: Given the nature of ECLGS, lending towards ETB MSMEs has accelerated, which has led to a deeper penetration of credit into the ETB segment. In Sep’20, 30% of MSMEs which had an existing live loan as of Mar’20, got another line of credit, compared to 7% for a similar time frame during 2019.
  • MSME loan originations rebound higher for non-metro locations than metro cities: Non-metro locations were subjected to less stringent and shorter lockdowns than metro cities. This is reflected in MSME loan originations of non-metro locations which exhibited YoY growth of 157% in Jun’20 and 20% in Sep’20. In comparison, metro locations exhibited lower YoY growth in originations at 76% in Jun’20 and 12% in Sep’20.
  • Public Sector Banks (PSB) have emerged leaders in MSME lending, followed by Private Banks: PSBs scaled YoY growth in originations stood at 30% in Sep’20 – nearly double their pre-COVID-19 levels of 16% YoY growth in Feb’20. For Private Banks the YoY originations growth stood at 16% in Sep’20. PSBs  have been the forerunners in MSME lending, a lead they have maintained since Apr’20. However, recent enquiry trends from Dec’20 and Jan’21 period show a reversal of this trend, as Private Banks have resumed MSME lending and are closing the gap rapidly.
  • 100% credit guarantee scheme has increased approval rates to higher than pre-COVID-19 levels: Approval rates increased by nearly 1.5 times in Jun’20 when compared with pre-COVID-19 levels. The rise in approval rates is most significant for PSBs which have grown around two times as compared to pre-COVID-19 levels. The highest beneficiaries of the rise in approval rates are high risk MSMEs with CIBIL MSME Rank (CMR) of 7-10 signalling caution and the need for regular monitoring of these portfolios.
  • Higher CMR downgrades are seen in sectors with higher consumer discretionary spends and Micro loans segment: Pandemic-related economic activity has led to a deterioration in borrowers’ credit profile, leading to higher CMR downgrades for Sep’19-Sep’20 period compared with the same period the year before. However, the downgrades are much more prononunced for higher consumer discretion spend sectors compared to consumer staple spend sectors largely in the Micro segment.
  • Default rates for Sep’20 are stable at 12.1% due to acceleration in credit supply: Non-Performing Asset (NPA) rates for the MSME segment for Sep’20 stand at 12.1%, which is similar to that of last year (12.5% in Sep’19) but lower than the last quarter (13.0% in Jun’20). The high credit infusion into the MSME segment since Jun’20 onwards has provided a strong denominator to NPA rates. However, NPA rates may be subject to change as the guidelines emerge.
  • Outstanding credit balances growth rate show a v-shaped recovery trend: Thelockdown during the  last 10 days of Mar’20, which is traditionally the most credit active period in India, hampered MSME credit activity, leading to a drop in outstanding credit balances growth of -3.9% YOY in Mar’20. Followed by ECLGS, where credit activity bounced back again and in Sep’20 outstanding credit balances increased by 5.7% YOY.