Loans outstanding to individuals fell 3% as consumption took a hit, according to RBI data
Credit to micro, small and medium enterprises (MSMEs) shrank up to 7.6% between March and May 2020 as the rapid rise in the number of Covid-positive cases and the lockdown brought economic activity to a halt. Loans outstanding to individuals fell 3% during the same period as consumption took a hit, showed data released by the Reserve Bank of India (RBI).
In the same period a year ago, credit outstanding to MSMEs had fallen up to 2.7% and that to retail had grown 0.9%. Loans to micro and small units shrunk the most, with the total amount outstanding in this segment falling to Rs 3.53 lakh crore on May 22 from Rs 3.82 lakh crore as on March 27.
These numbers do not include loans to the services sector, which also includes MSME borrowers. Credit to services companies shrunk 2% between March and May this year to Rs 25.43 lakh crore. In the retail segment, the steepest decline was seen in the category of advances against fixed deposits, which fell 20% between March 27 and May 22 to Rs 63,594 crore.
There could be some improvement in the June numbers as the guaranteed emergency credit line scheme, which offers MSMEs up to 20% of their existing bank borrowings as collateral-free loans, was launched last month.
On Tuesday, the finance ministry said banks have sanctioned over Rs 1 lakh crore worth of credit under the Rs 3-lakh crore scheme, while disbursements stood at Rs 45,860 crore.
Analysts expect the scheme to have a limited impact as weak capacity utilisation coupled with an elongated receivable cycle could keep cash flows under pressure for some time.
In a report dated June 30, India Ratings and Research said despite the relief measures, a significant portion of the firm’s rated universe could still test their negative rating sensitivities.
“In scenarios where the impairment in the business profiles and balance sheets is not expected to reverse in the near term, then the risk of a negative rating action could be high. Ind-Ra believes that notwithstanding access to funding under the schemes, entities may find it difficult to revert to their pre-COVID profile,” the report said.
Bankers have been signalling that debt alone will do little to revive the country’s MSME ecosystem. On Saturday, Uday Kotak, managing director and CEO, Kotak Mahindra Bank, said MSMEs must look beyond banks and non-bank lenders to beef up their equity capital bases and look to venture capital and angel investors.
“I am of the view that availability of risk capital — whether it is venture, whether it is angel — and developing the angel and the venture risk capital in India is crucial. Indian savings are not going enough towards risk capital and we need to channelise risk capital available for this industry with a particular focus on the SME sector,” he added.