Credit and Finance for MSMEs: The Modi government’s post-Covid flagship credit scheme for MSMEs Emergency Credit Line Guarantee Scheme (ECLGS) not only helped MSMEs to revive and scale their business but also enabled them to start new trades, said a new report by credit bureau TransUnion CIBIL on Monday. Over the course of four quarters since availing ECLGS, the average number of new trades opened per MSME borrower went up by 15 per cent compared to only 6 per cent for the eligible borrowers who didn’t avail of the credit scheme, the ECLGS Insights Report said.
Among the top beneficiaries, ECLGS helped revive contact-intensive sectors such as mobility and consumption-dependent sectors like services, traders, and construction, along with labour-intensive industries like textile and food processing. Traders had the highest share of 20.9 per cent in the disbursement amount followed by services businesses (19.2 per cent), textiles (8 per cent), food processing (5.7 per cent), construction (4.1 per cent), etc. Sectors with the lowest disbursement share were auto components, hospitality, paper and paper products, infrastructure, gems and jewellery, etc.
In terms of asset quality, the study noted that ECLGS was also able to help borrowers manage their asset credit better in comparison to those who were eligible for the credit scheme but didn’t avail it. The NPA rate for MSMEs availing ECLGS was 4.8 per cent, lower than 6.1 per cent for MSMEs who were eligible but did not opt for it. Moreover, the roll forward rate from 1-89 days past due (DPD) to over 90 DPD was lower at 22. 7 per cent for borrowers who borrowed credit through ECLGS versus 27 per cent for eligible non-borrowers.
“This again indicates that liquidity provided under ECLGS has helped in arresting probable defaults and protected not only the borrowers but also lenders from accumulating bad loans,” the report said.
“The liquidity shortage created post the pandemic, due to paucity of inflows while at the same time continuation of obligatory outflows, could have posed a possible threat of insolvency for businesses. The timely infusion provided through ECLGS has significantly helped in resurgence of businesses across geographies and at the same helped in controlling NPAs in MSME lending,” said Rajesh Kumar MD and CEO, TransUnion CIBIL.
On the supply side, the report said while public sector banks were early adopters in implementing ECLGS, private banks rapidly caught up. The contributions of public and private banks in terms of the amount disbursed were 42.8 per cent and 43.1 per cent respectively, while non-bank financial companies (9.4 per cent), small finance banks and rural regional banks (4.7 per cent) disbursed the remaining amount.
However, public sector banks processed the highest number of applications with 50 per cent share followed by 23 per cent share each for private banks and NBFCs. Small finance banks and regional rural banks, etc., had a combined share of 4 per cent in applications processed.
In terms of borrower type, 83 per cent who availed ECLGS up to March 2022 were micro enterprises while small businesses and large enterprises were 15 per cent and 2 per cent respectively of the total count.
According to the Reserve Bank of India (RBI)’s Financial Stability Report, loans amounting to Rs 3.32 lakh crore were sanctioned under ECLGS till April 30, 2022, of which Rs 2.54 lakh crore were disbursed. The sanctioned amount had jumped to Rs 3.48 lakh crore loans till June end.
Also read: 65% of banks expect MSME NPAs to increase in second half of 2022: FICCI-IBA survey
