Credit and Finance for MSMEs: Even as the Rs 3-lakh-crore Emergency Credit Line Guarantee Scheme (ECLGS), which has been extended till June 30, 2021, will alleviate short-term pain for the sector but it might enhance banks’ exposure to stressed MSME loans amid the second wave of the Covid pandemic, according to rating agency Fitch Ratings. “Extension of the MSME refinancing scheme until 30 June 2021 will alleviate short-term pain, but potentially add to the sector’s exposure to stressed MSMEs, which was around 8.5% of loans (9MFY21) as per Fitch’s estimate,” the agency said in a statement. Earlier this month, the government had announced ECLGS 3.0 to extend the scheme’s scope to cover enterprises in hospitality, travel & tourism, leisure & sporting sectors. The ECLGS scheme was last year extended from October 2020 to March 2021.
Under ECLGS, member lending institutions (MLIs) including public and private sector banks and non-banking financial companies (NBFCs) under the scheme had already sanctioned 82 per cent or Rs 2.46 lakh crore of Rs 3 lakh crore as of February 28, 2021, MSME Minister Nitin Gadkari had said in a written reply to a question in the Rajya Sabha last month citing data from the National Credit Guarantee Trustee Company (NCGTC) – the implementing agency of the ECLGS scheme.
The government had also announced the Rs 20,000-crore subordinate debt scheme for stressed MSMEs last year under the Covid stimulus package. As of March 3, 2021, 332 guarantees worth Rs 38.5 crore were approved since its launch in June 2020 and operationalized in August. The scheme intended to benefit 2 lakh MSMEs that are non-performing assets (NPAs) or stressed. According to the 12th round of bankers’ survey by FICCI-IBA between July and December 2020, 84 per cent respondents expected an increase in NPAs in the MSME sector during the first six months of 2021.
Fitch added that while there are asset quality concerns for banks since their financial results are yet to fully factor in the first Covid wave’s impact and the stringent 2020 lockdown, “we consider the MSME and retail loans to be most at risk.” MSMEs, however, had benefited from state-guaranteed refinancing schemes that prevented stressed exposures from souring. Meanwhile, bank credit growth to micro and small enterprises (MSEs) was up 6.4 per cent to Rs 11.48 lakh crore in January 2021 from Rs 10.79 lakh crore in January 2020, according to the March 2021 bulletin of the Reserve Bank of India. However, the January YoY growth contracted marginally by 0.2 per cent from 6.6 per cent December YoY growth. MSEs had a 12.09 per cent share in the overall Rs 94.97 lakh crore gross bank credit deployed in January 2021, down from 12.11 per cent in December 2020.