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 October 2020 edition

ECLGS boosted credit infusion to MSMEs: Credit infusion to MSMEs declined sharply post the lockdowns due to COVID-19 pandemic. The ECLGS scheme implementation brought the much needed boost and significantly helped in reviving credit infusion to MSMEs post its announcement in May 2020. Catalysed by this scheme, Public sector banks disbursed 2.6 times higher loan amount to MSMEs in Jun’20 over Feb’20. Even private sector banks’ credit disbursals in the MSME segment for Jun’20 were back at Feb’20 levels

Geographies which experienced less stringent lockdowns showed relatively better credit infusion and lesser decline in credit outstanding: MSME lending in Metro regions had the sharpest drop during lockdown and relatively lower rate of revival post-ECLGS. While number of MSME loans disbursed in Urban, Semi-urban and Rural regions for Jun’20 is over 3 times that of Feb’20,it was at 1.86 times for Metro regions. Similar trend is observed at state level- i.e. for states of Bihar, Jharkhand, Punjab and Kerala, the number of MSME loans disbursed in Jun’20 are over 4 times as compared to Feb’20; whereas for Maharashtra and Delhi it is 1.86 and 1.06 times respectively for the same period.

Micro loans segment showed the lowest decline in credit outstanding: At ₹ 16.94 lakh crores, the aggregate MSME credit outstanding reduced by 5.7% Y-O-Y as of Jun’20. However the Micro loans segment increased by 1% Y-O-Y with ₹4.5 lakh crores of credit outstanding as of Jun’20. While all the MSME sub-segments benefitted out of ECLGS, Micro loans had the largest increase in number of loans disbursed clocking 3 times the figure in Jun’20 over Feb’20.

NBFCs lag behind in fresh MSME loans disbursed and experience drop in market share: While disbursals by PSBs and Private Banks have come back to pre-covid levels, NBFCs have managed only 20% of Feb’20 disbursal amount in Jun’20. As a result, NBFCs lost their credit market share to PSBs and Private Banks.
We may expect NBFC disbursal amounts to improve given their enquiries for Jun’20 were at 40% of Feb’20 levels and improved to 60% in Jul’20 and Aug’20.

Structually strong MSMEs continue to be resilient during COVID-19 pandemic: In the 4 month window of Mar’20 to Jun’20 post- pandemic, the super-prime segment of CMR-1 to CMR-3 show lowest instances of missed payments on term loans at 25%; and in the sub-prime segment of CMR-7 to CMR-10 at 36% On Cash Credit /Over Draft facilities, the prime segment of CMR-4 to CMR-6 have relatively higher transition into higher utilization rate buckets than super-prime segment of CMR-1 to CMR-3. So, if missed payments and increasing utilization rates are considered as early signs of stress build up then structurally strong MSMEs continue to be relatively more resilient even through the economic disruptions posed by the pandemic.

Structurally strong MSMEs are existing in all the sectors: We have analysed the CMR distribution of MSMEs mentioned in the RBI’s Report of the Expert Committee on Resolution Framework for Covid-19 related Stress dated 07 Sep 2020. The analysis indicates that sectors like Logistics, Hotel-Restaurant-Tourism and Mining have relatively lower proportion of super-prime MSMEs. While sectors like Chemical & Pharmaceuticals, Manufacturing and Auto components, Manufacturing & Dealership have relatively largest share of super-prime MSMEs. But, a large majority of MSMEs across sectors are structurally strong and stand better placed in the current economic challenges.

CMR distribution of credit enquiries in Aug’20 has spiked towards higher risk from Feb’20 level: CMR distribution for PSBs, Private banks and NBFCs have reduced for super-prime MSMEs in the CMR-1 to CMR-3 bracket and increased for sub-prime MSMEs in the CMR-7 to CMR-10 bracket in Aug’20 as compared to Feb’20. Highest increase observed in sub-prime enquiries from NBFCs- from 15% in Feb’20 to 24% in Aug’20. PSBs showed the highest drop in super-prime enquiries- from 38% in Feb’20 to 32% in Aug’20. However, month-on-month trajectory of CMR distribution across all lender types has resumed to the Feb-20 level.

MSME segment NPA rates for Jun’20 are marginally higher than Mar’20: The NPA rates in Jun’20 for most MSME segments are marginally higher than the Mar’20 levels, but this trend is inline with the Jun’19 over Mar’19 increase observed during previous year. NBFCs showed a sharp rise in MSME NPA rates for Jun’20 at 9.7% compared to their Jun’19 levels of 5.8%. NPA rates of Private Banks have also increased to 5.8% in Jun’20 vis-a-vis 4.6% in Jun’19.