Nearly Rs 10 lakh crore worth of loans to Micro, Small and Medium Enterprises (MSMEs) were under-acknowledged as a bulk of these were disbursed to the proprietors who in turn used them in their businesses, a report said. Out of the total credit of Rs 25 lakh crore in the MSME segment, Rs 10 lakh crore is in the name of proprietor and family that is then used for business needs, according to the report by the Boston Consulting Group (BCG) on behalf of the Indian Banks’ Association (IBA) and the Federation of Indian Chambers of Commerce & Industry (FICCI).
“There are two forms of MSME borrowing from formal channels –borrowing in the name of the entity (~15 L Cr) and borrowings in the name of the individual (~10 L Cr, mostly in the name of proprietor and family) which is then channeled to support business needs,” the report said.
There is significant number of MSME borrowings made under the names of individuals in the segments with lower turnover, the report added. Gold and family property are often used as security in case of these borrowings, the report said.
“These loans, in the name of proprietor and family, are marked by banks under ‘personal’ loan category. But, the BCG report has categorised them under one of two formal MSME borrowing channels, considering their end use (business needs),” said Yashraj Erande, Partner and Director, BCG.
The growth in advances to MSMEs is pegged at 22 percent for the new private banks, just in line with the NBFCs, the leaders in the sector.
“MSME lending can be the largest source of value creation for the financial services industry as well as India as a nation. It’s both an obligation and an opportunity whose time has come. It will have a multiplier effect on the country’s GDP,” Yashraj Erande said.