Credit and Finance for MSMEs: In the post-Covid period, credit growth to MSMEs in the industrial sector was “distinctly higher” not only on a year-on-year basis but also in comparison with credit growth to large industries, said the Reserve Bank of India (RBI) in its latest Report on Trend and Progress of Banking in India for FY22 on Tuesday. The credit growth came on the back of the credit guarantee programme Emergency Credit Line Guarantee Scheme (ECLGS), coupled with lower gross non-performing assets (GNPA) ratios along with the addition of wholesale and retail trade in the MSME category in July 2021 that also helped boost the overall credit to the MSME sector, the central bank noted.
Credit to MSME industries grew by nearly 20 per cent in FY21 and over 35 per cent in FY22 after a negative growth of around 2 per cent in FY20, down from around 3 per cent in FY19, indicating Covid impact. In contrast, credit growth to large industries stood at around minus 5 per cent in FY21 and turned positive to around 3 per cent in FY22, according to the report.
Also read: Accelerating credit flow to MSMEs essential to $5 trillion economy dream by 2025: KPMG report
Credit Growth: MSME Industries vs Large Industries
Under the ECLGS scheme, banks have already supported over 1 crore MSMEs. As of November 30, 2022, 1.19 crore loans involving 71 per cent or Rs 3.58 lakh crore of the Rs 5 lakh crore ECLGS limit were sanctioned while 57 per cent or Rs 2.85 lakh crore loans were. Out of the total sanctioned amount, 66 per cent were extended to MSME borrowers while 95.17 per cent of loans sanctioned also belonged to MSMEs. The data was shared by the Minister of State in the finance ministry Bhagwat Karad in the Lok Sabha in the recently concluded winter session of the Parliament.
Also read: MSME credit demand up 1.6x from pre-pandemic levels: Report
With respect to the GNPAs also for MSME industries, the ratio dropped from around 13 per cent pre-Covid in FY20 to nearly 10 per cent in FY21 and around 7 per cent in FY22 in comparison to large industries’ relatively higher GNPA ratio which nonetheless also dropped from around 14 per cent in FY20 to around 9 per cent in FY22.
GNPA ratio is essentially the ratio of the total gross NPAs of the total advances made by a lender in a particular period. Gross NPAs indicate the total value or amount of gross non-performing assets for the lender while net NPAs refer to subtracting provisions made by the lender in that period from GNPAs. A declining GNPA ratio means the lender’s asset quality is improving while provisions are a part of the lender’s profit or income that it sets aside for loans that may turn into losses ahead.
Subscribe to Financial Express SME newsletter now: Your weekly dose of news, views, and updates from the world of micro, small, and medium enterprises