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.