Jun 21: The June quarter report of credit disbursement to Micro, Small and Medium Enterprise (MSME) sector by Small Industries Development Bank of India (SIDBI) and TransUnion CIBIL reveal that overall credit commercial credit exposure (Y-o-Y) has shown the highest growth rate in the last five quarters.
The MSME Pulse, the quarterly report of SIDBI-TransUnion CIBIL reveal that the total on-balance sheet commercial lending exposure in India stood at Rs.54.2 lakh crores, as of March 2018 with Micro and SME segment constituting Rs.12.6 lakh crores, which contributes to ~23% of commercial credit outstanding. While the growth in NPA rate has moderated, it is too early to conclude that the NPA problem is close to bottoming out.
MSME Pulse Second Quarter Edition Highlights
Broad based recovery in credit growth-Overall credit exposure(Y-o-Y) has shown the highest growth rate in last five quarters. In addition, after the lows of September 2017, even Large (greater than ₹ 100 Crores exposure) segment has shown two consecutive quarters of recovery in credit growth. Micro (credit exposure less than ₹ 1 Crore) and SME (₹ 1 Crore-25 Crores) segments constitute ₹ 12.6 lakh Crores credit exposure (23% of commercial credit outstanding) with Y-o-Y growth of 22% and 13% respectively .In comparison 7% for Mid (₹ 25 Crore-100 Crores) and 6% for Large (greater than ₹ 100 Crores exposure) from March 2017 to March 2018.
Large segment asset deterioration continues, Mid segment NPA rate restricted- In Large corporate segment, NPA rates have increased from 15.3% (in Mar’17) to 18% (in Mar’18).The directional reduction in NPA rate of Mid segment (16.3% in Mar’17 to 15.9% in Mar’18) may be attributed to bad debt being sold to Asset Reconstruction Companies(ARC) and uptick in loan growth in this segment. The stock of gross NPA in commercial exposure increased by 1.48 Lakh Crore in Mar’18 over Mar’17. However, quarterly additions to NPA suggest that the steepest rise was between Q2FY’18 to Q3FY18, While the growth in NPA rate has moderated, it is too early to conclude that the NPA problem is close to bottoming out.
Relatively stable asset quality for MSMEs: MSME NPA rates have remained stable and range bound. In the Micro segment the NPA rate has moved from 8.9 % (in Mar’17) to 8.8 % (in Mar’18) .In SME segment the NPA rate hovered between 11.4% (in Mar’17) to 11.2 % (in Mar’18). Recognized NPA exposure for MSME is ₹ 81,000 Crores as on Mar’18
Growth to ensure asset quality: Future NPA in the segment may be driven by ₹ 11000 Crores exposure, which are currently tagged as ‘standard’ but belongs to entities that have at least one or more exposures tagged as NPA by other bank or credit institution. Additionally, there is a system-side exposure of ₹120,000 Crores belonging to entities with CIBIL MSME Rank (CMR) between CMR 7 and CMR 10. CMR7 to CMR10 are associated with High Risk. These high-risk exposures are expected to add ₹16,000 Crores in NPA by March 2019. However, strong credit demand in this segment among other things driven by formalization of this segment is likely to keep the overall NPA rate in this segment in check.
New Private Banks most successful in tapping MSME opportunity: Private Banks and NBFCs have further increased their market share in Micro and SME lending from 27.5% and 9.1% in March 2017 to 30.3% and 10.9% in March 2018. Share of PSBs has fallen from 57% to 50.4% in the same period. Despite higher growth rate new Private Banks have better quality of acquisition of New to Bank (NTB) borrowers with 46% borrowers lying in high quality CMR 1 to CMR3. In comparison, other category of lenders have around 35% of their incremental borrowers in CMR1 to CMR 3.
New Private Sector Banks have 9% NTB acquisition in CMR-7 to CMR-10 grades compared to 16% in PSBs and 14% in NBFCs. However, New Private Banks and NBFCs lending to these high risk borrowers are largely offering asset backed loans, while PSU banks are offering plain working capital and term loans even to this segment.
Formalization may add a million a year New-to-Credit MSME borrowers: Number of new-to-credit (NTC) borrowers in MSME segment continued to accelerate with 5 lakh NTCs estimated in H1-18 compared to 4 lakhs in H2-17. In effect going forward, it may be expected that annually, at least a million plus NTC MSME borrowers would be seeking formal credit. Recent NTC portfolio study suggest that 60% first-time borrowers sustain or increase their credit, in the two-year period following their first formal loan.
Demonetization and GST Impact are firmly behind the MSMEs: As of Mar’18 based on the credit utilization exposure, the metrics used to gauge the impact in this study, it appears that most MSME’s including the smallest ones have recovered from the impact of demonetization and GST.
Risk Profile study of top 30 locations: A study of risk profile of top 30 locations by CMR distribution of borrowers shows that locations in North and West regions have a comparatively better risk profile than the locations in South and East.