MSME Credit on the path of recovery, RBI Data

The year-on-year growth in credit deployed by scheduled commercial banks to Micro and Small enterprises (MSEs) improved to 19.2 % in July 2022 from 1.4 % in July 2021, according to the latest data by the Reserve Bank of India (RBI) on sectoral deployment of bank credit. The total bank credit to MSEs in July this year stood at Rs 14.41 lakh crore vis-a-vis Rs 12.09 lakh crore a year ago. Credit growth to MSEs has remained positive since December last year, indicating a negligible impact of the third wave of the pandemic and gradual economic recovery. During June, the YoY growth stood at 23.7 % while in May, 27 % growth was recorded.

The aggregate credit deployed to the MSME sector, combining credit to MSEs and medium enterprises, in July was Rs 18.08 lakh crore, 24 % increase from Rs 14.56 lakh crore in July last year. During April, May, and June in the current financial year, credit deployed to MSMEs stood at Rs 17.63 lakh crore, Rs 17.81 lakh crore, and Rs 17.93 lakh crore respectively.

Importantly, the incremental credit to MSMEs since the beginning of the pandemic (March 2020) has been on an upswing witnessing a significant jump of Rs 2.7 lakh crores, of which disbursements under the Emergency Credit Line Guarantee Scheme (ECLGS) have been around Rs 2.36 lakh crores, public lender State Bank of India’s Ecowrap report in July 2022 had noted.

However, the asset quality in the MSME sector is still a concern. The MSME non-performing assets (NPAs) had increased by 12.59 % in Q4 FY22 to Rs 2.95 lakh crore from Rs 2.62 lakh crore during Q4 FY21. The overall MSME NPA rate as on March’22 stood at 12.8 % in comparison to 12.5 % for March’21. Also, a survey of 25 banks, which constitutes about 76 % of the total banking asset size, by FICCI and Indian Banks’ Association (IBA) in August noted that 65 % of respondent banks expect MSME NPAs to increase in the second half of the current calendar year.

With a large pent-up demand following two years of covid related disruptions, there is a huge potential to bring significant change in the way financial services are offered and consumed.

Source: Financial Express