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Addressable MSME base for banks expanding with growing Udyam registrations: Crisil

Credit and finance for MSMEs: As of October 3, 2022, 1.12 crore MSMEs had registered on the Udyam portal, of which 1.06 crore were micro units, 4.13 lakh were small enterprises, and 38,885 were medium units.

Addressable MSME base for banks expanding with growing Udyam registrations: Crisil
The asset quality in the MSME segment, which saw the maximum restructuring, remains a key monitorable, with gross NPAs expected to rise in the current financial year, Crisil said.

Credit and finance for MSMEs: With the increasing formalisation of the MSME sector and the number of MSMEs registered under the Udyam portal, the addressable base for banks is expanding, especially for priority sector loans, said credit rating agency Crisil Ratings on Monday. “The segment is also riding on the benefits of government reforms,” the agency said in its H1 FY23 round-up of India Inc’s credit ratings.

As of October 3, 2022, 1.12 crore MSMEs had registered on the Udyam portal, of which 1.06 crore were micro units, 4.13 lakh were small enterprises, and 38,885 were medium units, according to the data from the Udyam portal that was launched in July 2020 to replace the erstwhile Udyog Aadhaar Memorandum (UAM) portal for MSME registration. 

The government’s intent to launch Udyam has been to ease the process of formalisation of MSMEs for better decision-making with respect to relevant schemes and initiatives to be undertaken to help the sector grow.

“The multiplicity of issues which we face in the MSME sector, it is probably a multi-pronged approach which is more suitable. The first obvious step here, which is also kind of the biggest ambition of the MSME Ministry is to identify micro, small and medium entrepreneurs and to bring them under a formal structure. Formalisation is our primary target and the biggest ambition,” MSME Ministry Secretary B.B. Swain had at FE MSME Business Conclave organised by FEASPIRE in June this year. 

Crisil highlighted growth in the Udyam database as one of the points noting improvement in key performance metrics for banks. The banking sector is at an inflection point, slowly putting past vulnerabilities behind and making a comeback after a phase of a sharp increase in gross NPAs, fall in profits, and subdued credit growth, the agency said.

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Credit growth for the banking sector is likely to pick up to 14-15 per cent in fiscal 2023 from around 12 per cent in the previous fiscal. However, the asset quality in the MSME segment, which saw the maximum restructuring, remains a key monitorable, with gross NPAs expected to rise in the current financial year, Crisil said.

Importantly, the Reserve Bank of India (RBI) in its Financial Stability Report (FSR) in June this year 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. For the next financial year 2023-24 as well, the asset quality in the MSME segment may deteriorate, Crisil said in a statement last month. Gross MSME NPAs may rise to around 10-11 per cent by March 2024 from approximately 9.3 per cent as on March 31, 2022.

Also read: Bank credit to micro, small enterprises up 19% YoY in August: RBI data

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