Credit and Finance for MSMEs: The latest round of the bankers’ survey by industry body FICCI and Indian Banks’ Association (IBA) on Monday said 65 per cent of respondent banks expect non-performing assets (NPAs) in the MSME sector to increase in the second half of the current calendar year (July-December 2022). In comparison, 82 per cent of respondent banks in the previous survey (July-December 2021) had expected MSME NPA levels to rise in the first half of 2022. The latest survey recorded responses from 25 banks representing a mix of the public sector, private sector and foreign banks constituting about 76 per cent of the total banking asset size.

Importantly, a recent report by SIDBI and credit bureau TransUnion CIBIL had reported a 12.59 per cent jump in the MSME sector’s NPAs during the fourth quarter of FY22 to Rs 2.95 lakh crore from Rs 2.62 lakh crore during Q4 FY21, indicating the Covid impact. The overall MSME NPA rate as on March’22 was 12.8 per cent vis-a-vis 12.5 per cent for March’21 and 12.6 per cent for March’20.

The Reserve Bank of India (RBI) also in its Financial Stability Report (FSR) in June this year had noted that even as the gross NPA ratio of banks in the MSME sector dipped from 11.3 per cent in September 2021 to 9.3 per cent in March 2022, the bad assets in the sector remain relatively high. According to the report, the Rs 46,186-crore restructured MSME portfolio, which constituted 2.5 per cent of total advances under the May 2021 restructuring scheme, has the potential to create stress in the sector.

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However, in terms of the overall asset quality across sectors, the FICCI-IBA survey noted that over 50 per cent of respondents expect gross NPA levels to be below 8 per cent by the end of December 2022 while 33 per cent of respondents view gross NPA levels to be at 8-9 per cent. The reasons for the same included recovery of the economy from the Covid shock, higher credit growth, substantial deleveraging of corporate balance sheets, better performance of industry, healthy capital position, use of recovery agencies, and transfer of NPA accounts to National Asset Reconstruction Company Limited (NARCL). 

In contrast, respondents who see high NPA risk in the range of 9-10 per cent in the second half of 2022 attributed it to supply chain disruptions, rising inflation, higher commodity prices, asset quality deterioration, possible global recession and slowdown in global trade triggered by prediction of recession in the US.

Apart from the MSME sector, other sectors that are likely to have higher NPAs in the coming six months included aviation with 50 per cent of respondents expecting a jump in NPAs followed by 45 per cent of respondents who anticipate a jump in NPAs in the tourism and hospitality sector. Power and retail trade were the other two sectors in the top-five bracket with respondent banks expecting a 35 per cent jump in NPAs in both sectors.

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