Credit and Finance for MSMEs: The non-performing assets (NPAs) in the micro, small and medium enterprise (MSME) sector have jumped 12.59 per cent in the fourth quarter of the financial year 2021-22 to Rs 2.95 lakh crore from Rs 2.62 lakh crore during Q4 FY21, a report by SIDBI and credit bureau TransUnion CIBIL showed, indicating the Covid impact. The overall MSME NPA rate as on March’22 stood at 12.8 per cent in comparison to 12.5 per cent for March’21 and 12.6 per cent for March’20.
The NPAs started to climb from Rs 2.42 lakh crore during Q3 FY21 and peaked at Rs 3.10 lakh crore during Q2 FY22 before dropping slightly to Rs 3.01 lakh crore in the following quarter and further in Q4, showed MSME Pulse August 2022 report. Importantly, the drop in NPAs was visible across all segments of the sector viz., micro, small, and medium.
Till Q3 FY21, the micro segment had a lower NPA rate than the small segment. However, the trend was flipped indicating that Covid impacted micro segment the most, the report noted. As of Q4 FY22, the NPA rate in the small segment dropped to 10 per cent (from 11 per cent in Q2 FY22) while micro and medium segments had 12 per cent (down from 13 per cent in Q1 FY22) and 16 per cent (down from 17 per cent in Q2 FY22) NPA rates respectively.
With respect to lender type, NPA rates across private banks, non-banking financial companies (NBFCs) and public sector banks (PSBs) recorded an increase post around Q3 FY21 for the following two-three quarters before stabilising or starting to decline. For instance, private banks’ NPA rate (lowest among NBFCS and PSBs) increased from 5.9 per cent in Q3 FY21 to 6.8 per cent in Q2 FY22 before sliding to 5.6 per cent in Q4 FY22.
The NPA rate for PSBs, which has been highest in comparison to private banks and NBFCs, increased from 16.1 per cent in Q3 FY21 to 21.1 per cent in Q2 FY22 but remained stable at 20.8 per cent as of Q4 FY22. For NBFCs too, the NPA rate peaked from 8 per cent in Q2 FY21 to 10.9 per cent in Q1 FY22 before dropping to 9.6 per cent in Q4 FY22.
According to an analysis of the restructured loans due to Covid — based on the Reserve Bank of India (RBI) mandate in March 2021 for banks and other lenders to report accounts restructured due to the pandemic to credit bureaus — 2.7 lakh accounts were tagged as restructured in MSME sector (aggregate outstanding of less than Rs 50 crore) as of March 2022, the report said. This constituted around 2.3 per cent of the total live accounts reported in the same time period. From a balance perspective, it constituted Rs 0.35 lakh crore which was around 1.5 per cent of MSME outstanding as of March 2022.
In its Financial Stability Report (FSR) in June this year, the RBI noted that while the gross NPA ratio of banks in the MSME sector has moderated from 11.3 per cent in September 2021 to 9.3 per cent in March 2022, the bad assets in the sector remain relatively high. The central bank had noted the Rs 46,186-crore restructured MSME portfolio, which constituted 2.5 per cent of total advances under the May 2021 restructuring scheme, has the potential to create stress in the sector.