Credit and finance for MSMEs: Small finance banks (SFBs) have reported the highest credit growth of 37.6 per cent in the second quarter (July-September) of the current fiscal from the year-ago quarter among other banks, according to a report by the credit rating agency CareEdge Ratings on Thursday. Compared to SFBs, private banks recorded 20.9 per cent credit growth in Q2 FY23 from Q2 FY22 while public sector banks (PSBs) saw 15 per cent growth and foreign banks reported 13.8 per cent growth. Regional rural banks settled Q2 with 12.5 per cent credit growth from the year-ago quarter.

Likewise, in terms of deposits as well, SFBs led the tally with 45.5 per cent growth in Q2 FY23 from Q2 FY22 vis-a-vis 12.9 per cent growth in deposits for private banks, 9.5 per cent growth for foreign banks, 8 per cent growth for PSBs, and 5.6 per cent growth for regional rural banks.

Also read: Small finance banks playing progressive role in giving credit to small businesses: RBI Deputy Governor Rao

Moreover, the Credit to Deposit (CD) ratio of SFBs was also highest at 117.3 per cent as of September 2022 quarter even as it dropped from 124 per cent as of September 2021 quarter. CD ratio is a ratio to understand how much money the lender has raised as a deposit versus how much of the deposit was given as loans. Nonetheless, private banks reported the highest rise of 321 basis points year-on-year in their CD ratio reaching 88.8 per cent as of September 30, 2022, while regional rural banks’ CD ratio reached 71.4 per cent, PSBs’ 68.2 per cent, and foreign banks’ 60.5 per cent.

Also read: Small finance banks’ capital raising challenge beginning to ease; over Rs 3,200 cr raised in Q2 FY23: CareEdge

However, asset quality seems to be a challenge for SFBs in priority sector loans to micro and small enterprises (MSEs). According to an RBI report on Trends and Progress of Banking India launched on December 27, 2022, SFBs had the highest share of MSE gross NPAs in their total NPAs in FY22. While SFBs reported a 28.98 per cent share of MSE GNPAs in their overall NPA value, public banks’ MSE GNPAs had a share of 18.96 per cent. On the other hand, foreign banks reported an 11.88 per cent share while private banks saw a 10.52 per cent share of MSE GNPAs in their total NPAs.

Subscribe to Financial Express SME newsletter now: Your weekly dose of news, views, and updates from the world of micro, small, and medium enterprises