MSME loans: Average ticket size for existing, new borrowers contracts significantly amid Covid

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February 22, 2021 8:02 PM

Credit and Finance for MSMEs: The ETB lending accelerated to 30 per cent during January-September 2020 from 7 per cent during the year-ago period by banks and NBFCs.

REAfter the launch of the ECLGS scheme, credit originations, which peaked in June 2020 to 115 per cent YoY growth rate, contracted to around 20 per cent in September 2020.

Credit and Finance for MSMEs: The average ticket size of MSME loans has reduced among both existing and new borrowers during the first nine-month period of 2020. For existing-to-bank (ETB) borrowers, the average loan size dropped from more than Rs 40 lakh in January 2020 to under Rs 10 lakh in September. Likewise, the average loan size for new-to-bank (NTB) borrowers also declined from Rs 18 lakh in January to over Rs 10 lakh in September, according to SIDBI’s February 2021 MSME Pulse report. “Ticket size reduction is largely because of the 20 per cent cap of the Emergency Credit Line Guarantee Scheme (ECLGS). Moreover, with the Covid impact on revenues, the requirement had probably also declined that led to the fall,” Ramesh Kumar, Assistant Manager, Economic Research and Data Analysis Vertical, SIDBI told Financial Express Online.

Launched in May 2020 to support Covid-hit MSMEs and other businesses, ECLGS 1.0 was amended on November 26, 2020, and extended till March 31, 2020, with the introduction of ECLGS 2.0 that was expanded in scope. Under 1.0, an emergency credit line was offered from banks and NBFCs up to 20 per cent of businesses’ entire credit outstanding as of February 29, 2020. MSMEs with up to Rs 25 crore outstanding and Rs 100 crore turnover were eligible. However, the turnover cap was removed post amendment in November.

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The shift in lending appetite was also observed across all lenders including private and public sector banks and non-banking financial companies. The average ticket size for MSME loan originations reduced from around Rs 40.7 lakh in January to Rs 20.9 lakh in June but bounced back to Rs 40.1 lakh in September by private banks. On the other hand, NBFCs’ average loan size was most stable among the three lender types. From 20 lakh in January, the average loan size by NBFCs stood at around Rs 10.8 lakh from Rs 20 lakh in January. For public banks, the size decreased from Rs 20 lakh to around Rs 5 lakh during the said period.

Moreover, lending to ETB borrowers post-Covid also increased on the back of the ECLGS scheme. The ETB lending accelerated from 7 per cent in January-September 2019 to 30 per cent in January-September 2020 period. According to the report, this trend had started showing even before the launch of ECLGS but after ECLGS launch, it became even more pronounced. “ECLGS is only for existing borrowers. After ECLGS launch, it was apparent for banks to back more of ETB units as they would find comfort in existing borrowers,” added Kumar.

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