Credit and Finance for MSMEs: Year-on-year growth in the deployment of gross bank credit to micro and small enterprises (MSEs) stood at 10.6 per cent in March from 8.4 per cent in February and 4.8 per cent in January as the post-Covid business recovery continued among small enterprises. According to the latest data on sectoral deployment of gross bank credit by the Reserve Bank of India (RBI), banks deployed Rs 13.12 lakh crore to MSEs in March 2022 vis-a-vis Rs 11.86 lakh crore disbursed in March 2021. The YoY growth in bank credit to MSEs has been positive since December after three consecutive months (September-November) of contraction.
Credit deployed to medium enterprises also continued to post double-digit growth of 36.9 per cent. Rs 3.04 lakh crore was disbursed by banks to medium units in March, up from Rs 2.22 lakh crore in March 2021.
The overall credit deployed to the MSME sector in March was also higher at Rs 16.17 lakh crore from Rs 16.10 lakh crore deployed in the previous month of February. In terms of gross bank credit share, March disbursements to MSMEs was 13.6 per cent of Rs 118.90 lakh crore gross credit deployed by banks, marginally down from 13.8 per cent in February and 13.11 per cent in January.
Nonetheless, amid the gradual improvement in demand and rapid economic growth, the MSME sector is estimated to see a 7-9 per cent jump in credit in FY22 to Rs 18 lakh crore in comparison to Rs 17 lakh crore in FY21 and Rs 16 lakh crore during pre-Covid FY20, a study by Assocham and Crisil –MSMEs Back to the Grind had said in April. Book growth of banks is projected to be higher at 8-10 per cent in comparison to 5-7 per cent growth for non-banking financial companies (NBFCs). Banks had an estimated share of 78 per cent in the MSME lending book during FY22 while NBFCs had a share of only 22 per cent.
Importantly, to further aid MSMEs’ credit recovery, the Parliamentary Standing Committee on Industry in its report in March had recommended the government to extend the loan repayment period under the Emergency Credit Line Guarantee Scheme (ECLGS) for MSMEs up to seven-eight years. Currently, the repayment period of three-four years including the moratorium period under the scheme is a very short period for MSMEs that are struggling to survive the impact of the second wave of Covid, the committee had said.
The parliamentary panel had also asked for at least a two-year moratorium period on the principal amount. Finance Minister Nirmala Sitharaman in her budget speech this year had extended the ECLGS scheme up to March 2023 along with an increase in guarantee cover by Rs 50,000 to Rs 5 lakh crore.