MSMEs: MSMEs maintain positive credit growth: Report – The Economic Times–23.06.2018

With the impact of GST and demonetisation gradually wearing off, the MSME sector is now expected to grow at a swift pace.

The MSME segment in India is growing at a positive rate of 15% year-on-year, according to the second edition of ‘MSME Pulse’ report released by credit bureau Cibil and MSME lender Sidbi.

Private banks and NBFCs continue to improve market share, especially with better rated SME borrowers. Asset quality, though improving, continues to remain high, especially in the high ticket segments. Low credit penetration, push towards formalisation of economy, and a gradual shift in the focus of banks and NBFCs towards this segment provide strong tailwinds to the business, the report reveals.

Credit growth

Demonetisation and GST impact wearing off
With the impact of GST and demonetisation gradually wearing off, the MSME sector is now expected to grow at a swift pace. The muted corporate loan growth is another stimulant pushing banks towards retail and MSME lending.

The report studies that this growth is skewed towards the lower end of the spectrum with an average ticket size of less than Rs 5 million. Constituting 21% of the MSME space this segment witnessed 25% year-on-year growth in FY’ 2018. With a gradual push towards formalisation and higher availability of income disclosures on account of GST, credit growth will ramp up going ahead, predicts the report.

Public banks’ loss is private sector’s gain
On one hand MSME segment is registering a positive growth, on the other public banks are increasingly losing market share in favour of their private peers and NBFCs.

PSU banks have a dominant (~75%) market share in new-to-credit (NTC) for below Rs 1 million loans (July 2017-December 2017). Outreach of PSU being higher than that of private banks, lending in the low ticket-size segment is higher. However, NBFCs are rapidly increasing competition in such geographies. Private banks and NBFCs have ~49% market share of customers in the Rs 50-100 million segment.

PSUs and private banks

Improving asset quality
Asset quality which deteriorated post demonetisation and broadly remained flat in the first half of FY’ 18, owing to concerns related to GST has started to show patches of improvement. The segments below Rs 1 million segment and Rs 50-100 million have ~11% NPL ratios compared to 8-9% for other segments. The Rs 100-250 million segment has the highest NPLs at 14% (down 60 bps quarter-on-quarter).

The report also suggested that the higher NPLs in Rs 50-100 million segment possibly corroborate higher stress in the LAP segment. Stress in SME books across PSU banks at 15% NPL is higher than that of private banks at 3.9% GNPL and NBFCs at 5% NPL as of FY’ 2018. This, found the report, is directly related to the fact that PSUs lend to the lower end of the spectrum which exhibit higher delinquencies.

Significant diversity in risk profile across geographies
The report also found out that the SME/MSME space is highly susceptible to macroeconomic events like demonetisation and higher geographic concentration may pose significant risks. Within the top 10 locations, western and northern regions of NCR, MMR, and Ahmedabad show a better risk profile reflected from a higher proportion of people lying in CMR 1-3 (CIBIL MSME Rank); while Southern regions like Chennai, Bangalore, and Hyderabad have a weaker risk profile.

While diversity in the risk profile is quite high within the top 10 locations, it is relatively less dispersed in case of the next 20 locations. The negative skew towards southern India is also less obvious in these cases, revealed the report.

Diversity across geographies

via MSMEs: MSMEs maintain positive credit growth: Report – The Economic Times

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s