Bank loan to MSMEs: Credit growth to micro, small businesses contracts in September from year ago

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November 02, 2021 1:57 PM

Credit and Finance for MSMEs: The total gross bank credit of Rs 13.20 lakh crore deployed to the MSME sector in September 2021 was 12.04 per cent of India's overall gross bank credit of Rs 109.56 lakh crore.

For medium enterprises, while the YoY bank credit growth remained positive but the growth rate continued to decline.

Credit and Finance for MSMEs: After two months of positive growth in year-on-year (YoY) gross bank credit deployment to micro and small enterprises (MSEs), the credit growth again slipped into negative in September 2021 despite post-Covid economic recovery and ease in pandemic-related restrictions. Banks deployed Rs 11 lakh crore, down minus 2.6 per cent from Rs 11.13 lakh crore in September 2020, showed the Reserve Bank of India’s (RBI) latest data on the deployment of gross bank credit to major sectors. The contraction followed 0.2 per cent of YoY growth in July and 1.1 per cent growth in August 2021 after the preceding three months of negative YoY growth from minus 2.2 per cent in April to minus 3.6 per cent in May and minus 3.5 per cent in June, data from RBI’s previous bulletins showed.

For medium enterprises, while the YoY bank credit growth remained positive but the growth rate continued to decline to 24.3 per cent in September 2021 from 54.6 per cent in August, and 70.9 per cent in July. Banks deployed Rs 2.19 lakh crore in September in comparison to Rs 2.07 lakh crore during the year-ago period. In August Rs 2.15 lakh crore was deployed vis-a-vis Rs 1.39 lakh crore in August 2020. However, the July growth of 71 per cent was highest in the current financial year after 70.8 per cent growth in April this year.

Importantly, the total gross bank credit of Rs 13.20 lakh crore deployed to the MSME sector in September 2021 was 12.04 per cent of India’s overall gross bank credit of Rs 109.56 lakh crore. This was marginally down from 12.15 per cent in August 2021. The overall bank credit in September, however, was up from Rs 108.97 lakh crore in August. In comparison, the total bank credit in July was Rs 109.10 lakh crore and Rs 108.41 lakh crore in June.

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“While large businesses can get loans easily, the challenge is faced by MSMEs wherein the credit size is over Rs 5-7 crore, as they require medium-term capital while many banks ask for collaterals. MSMEs don’t have extra collateral with them for banks to disburse loans even as the government has been urging and incentivising banks to provide credit to MSMEs without collateral. Then there are also possibilities of NPAs in MSME sector banks to address ahead,” Vinod Karwa, Owner, Victor Agencies and Co-chair, MSME Committee, PHD Chamber of Commerce and Industry told Financial Express Online. 

The government in September had extended its flagship post-Covid credit guarantee scheme for MSMEs, ECLGS to March 31, 2022. As of September 24, 2021, loans sanctioned had crossed Rs 2.86 lakh crore under the ECLGS scheme, and out of total guarantees issued, about 95 per cent were for loans sanctioned to MSMEs, the Finance Ministry had said in its statement. The last date of disbursement under the scheme was also extended to June 30, 2022. Moreover, to provide relief from Covid stress, the RBI in June this year had expanded the scope of restructuring facility for existing MSME loans from Rs 25 crore earlier to Rs 50 crore without a downgrade in the asset classification till September 30, 2021.

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