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 XII– Highlights

  • ECLGS and other interventions for the MSME sector have led to higher loan amount disbursed to MSME segment in FY 2021than earlier years. In FY 2021, the country disbursed loans worth `9.5 lakh crore to MSME sector; higher than preceding year of `6.8 lakh crore in FY2020. This sharp jump in MSME lending for FY 2021 was supported by Atmanirbhar Bharat scheme of ECLGS which provided 100%credit guarantee to lenders.
  • Unlocks in June’21 have led to a sharp bounce back in credit demand (measured as credit enquiries) by MSMEs, which wasdampened by the 2nd wave after a strong 4th quarter of FY’21. After the initial drop in commercial credit enquries by 76% due to the 1st wave, they recovered fast with ECLGS and have sincesustained close to pre-COVID levels. March’21 commercial credit enquiries were 32% over pre-COVID levels; this strong momentum was impacted by 2nd wave, but June ’21 has a sharp recovery back to pre-COVID levels.
  • MSME credit outstanding has grown by 6.6% YoY in March’21, with Micro segment growing the fastest at 7.4%. Strong rebound in credit demand, accompanied by equally strong credit supply and ECLGS support, has led to growth in the credit outstanding amount of MSME sector to `20.21 lakh crores, with a YoY growth rate of 6.6%. Micro segment has grownfastest at 7.4%, followed by Small segment at 6.8% and Medium segment at 5.8%.
  • Lending to New-to-Bank (NTB) MSMEs has recovered back to pre-COVID levels, while lending to Existing-to-Bank (ETB) continues to be bouyant. Credit disbursals to NTB MSMEs had dropped by 90% in April’20 compared to pre-COVID levels, and has gradually reurned backto 5% higher than pre-COVID levels in March’21. Credit disbursals to ETB MSMEs jumped to 75% over pre-COVID levels in June’20 due to ECLGS, and since then has sustained at pre-COVID levels.
  • Policy level interventions by government and regulator have reflected in controlling the credit downgrades in MSME till Dec.’20, with a jump in downgrades for March’21. MSME credit performance movement, measured through CIBIL MSME Rank (CMR) downgrades, has been broadly in control till Dec.’20 with policy-level interventions. With the lifting of moratorium and clarification in guidelines for delinquency recognition, the downgrades have jumped in the quarter of March’21 — leading to a rise in the pool of mid-risk MSMEs.
  • Risk appetite across lenders is back to pre-pandemic levels. Approval rates have increased across all lenders with the backing of 100% credit guarantee of ECLGS. Theoriginations share by CMR show that share of high-risk segment CMR 7–10 dropped and low-risk segment CMR 1–3 increased in the initial period of pandemic. But now, the originations distribution by CMR is similar to that of thepre-COVID-19 levels.
  • Lenders are relatively more open to lend to MSMEs which missed payments in last 12 months: 29% of the borrowers from MSME lending in Jan to Mar'21, have missed more than one payment in last three months.The same proportion for Jan'20 to March'20 was at 21%, indicating increasing acceptance of lenders to fund MSMEswith missed payments.
  • NPA rates for MSME portfolios are stable due to high credit growth: With the strong inflow of credit in the MSME sector, and various support measures from government and regulator,the NPA rates for MSMEs are controlled at 12.5% for March 21 compared to 12.6% for March’20. However, the NPA ratesfor March ’21 are higher than Dec.’20 (12%) coupled with credit downgrades.