Growth in bank credit to small businesses fall; here’s what RBI data shows

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Published: April 15, 2020 3:50 PM

Credit and Finance for MSMEs: From 11.9 per cent credit growth between April FY19 and April FY20, it declined to 6.7 per cent in February FY20 from the year-ago period.

Deployment in July and August witnessed the highest contraction at minus 1.8 per cent.

Credit and Finance for MSMEs: Growth in bank credit to micro and small enterprises (MSE) contracted marginally in February to 2.6 per cent from 3.1 per cent in the preceding month in the current financial year. From Rs 10.67 lakh crore credit deployed by banks as on March 29, 2019, the amount increased to Rs 11 lakh crore (3.1 per cent) as on January 31, 2020, and Rs 10.95 lakh crore (2.6 per cent) as on February 28, 2020, showed RBI data in its April bulletin. Since April FY20, the growth in gross bank credit to MSEs remained contracted till December. Deployment in July and August witnessed the highest contraction at minus 1.8 per cent.

“From December or January to March, the deployment is always higher as compared to the rest of the year as loans raised by MSMEs goes up because orders from the government or PSUs increase towards the end of the financial year. They look to fulfil their annual target of procurement from MSMEs even as banks have to exhaust their annual disbursement target to MSMEs in a given financial year. So MSMEs try to fulfil as many orders as possible through the loans taken,” Pankaj Kumar, President, Indian Industries Association told Financial Express Online.

Also read: RBI mulls regulatory sandbox for innovation in MSME lending; suggests businesses how to stay competitive

In terms of the year-over-year (YoY) growth in credit to MSEs, the credit growth has declined. From 11.9 per cent credit growth between April FY19 and April FY20, the growth declined to 8.1 per cent in January FY20 in comparison to the same period last FY and 6.7 per cent in February FY20 from the year ago period. “This could be much higher but banks didn’t offer much help to MSMEs even the RBI and government urged them to support small businesses,” said Kumar. The credit growth in manufacturing MSE stood at minus 1.1 per cent to Rs 3.71 lakh crore from Rs 3.75 lakh crore as on March 29, 2019. However, the growth for services MSEs was 4.7 per cent at Rs 7.23 lakh crore up from Rs 6.91 lakh crore in March last year.

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