MSE credit growth remains in red for third straight month in June; share in gross bank credit up

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August 26, 2021 1:07 PM

Credit and Finance for MSMEs: Bank credit to medium enterprises reported a 63.2 per cent YoY growth to Rs 1.88 lakh crore in June 2021 from Rs 1.15 lakh crore in June 2020.

Mature factoring markets, more specifically Europe, continue to dominate the factoring market, accounting for 68% of global factoring. The factoring market worldwide is projected to reach $9.2 trillion by 2025.The share of MSEs in India’s gross bank credit in June improved after a five-month decline.

Credit and Finance for MSMEs: Growth in gross bank credit deployment to micro and small enterprises (MSEs) remained in the red for the third straight month of the financial year (FY) 2021-2022. The outstanding credit as of June was Rs 10.36 lakh crore – a negative 3.5 per cent year-on-year (YoY) growth from Rs 10.74 lakh crore deployed in June last financial year, showed the Reserve Bank of India’s (RBI) August 2021 bulletin. The contraction had improved marginally by a per cent from minus 3.6 per cent in May. The YoY credit growth had slipped into negative in April at minus 2.2 per cent after registering the lowest growth of 2.5 per cent in March this year and 1.5 per cent in May 2020. Moreover, credit growth in the current FY so far (from Rs 11.07 lakh crore deployed in March till June) stood at minus 6.4 per cent.

“Perhaps since a lot of credit was given to small businesses, credit limits were enhanced, and collateral-free loans were given post Covid, banks now have been looking more prudent in lending and reviewing their accountsDuring the Covid period, credit to MSMEs was offered through schemes like ECLGS but possibly performance has not lived up to the projection, hence banks are seemingly more circumspect about lending. Also, MSMEs may not be making as many investments as they are just coming out of the Covid cycle and trying to see if the next few months would be normal before they embark on fresh investment cycle,” Umesh Balani, MD and CEO, Rotomag Motors and Controls, and Chairman, MSME Development Council, Assocham told Financial Express Online.

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On the other hand, bank credit to medium enterprises reported a 63.2 per cent YoY growth to Rs 1.88 lakh crore in June 2021 from Rs 1.15 lakh crore in June 2020 but down from 64.7 per cent YoY growth in May 2021 and 70.8 per cent in April 2021. Banks had deployed credit of Rs 1.89 lakh crore in April and Rs 1.83 lakh crore in May. The credit deployment growth in medium enterprises in the current FY till June was minus 8.7 per cent as March deployment was higher at Rs 2.06 lakh crore vis-a-vis YoY deployment. 

Importantly, the share of MSEs in India’s gross bank credit in June increased after a five-month decline. Of the total bank credit to sectors including food and non-food of Rs 108.41 lakh crore in June, the share stood at 9.55 per cent, up from 9.48 per cent of Rs 108.33 lakh crore total credit in May. From 12.11 per cent in December 2020, MSEs’ share had contracted to 12.09 per cent in January 2021, 11.8 per cent in February, 11.3 per cent in March, 9.7 per cent in April, and 9.48 per cent in May.

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